Interesting FOMC fight developing over the powers of the Chairman versus the governors:
“Federal Reserve’s interest-rate target is getting close to zero, and so is the power of the Fed’s regional bank presidents.
The district chiefs’ authority over borrowing costs has been marginalized in the past two months as Chairman Ben S. Bernanke and the Fed Board of Governors in Washington made their own decisions on emergency measures to flood the economy with cash.
“The Board has usurped authority,” said William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington. “This dramatic change in policy direction has not been announced or even acknowledged.”
Bernanke must now try to bring the Federal Open Market Committee, which includes district presidents and Fed governors, along as he turns to more radical strategies, such as buying Treasuries to drive down long-term rates. A lack of consensus at next week’s FOMC meeting could result in muddled communication that confuses investors and undermines confidence.”
You may not know this, but Greenspan had his wings clipped in the early 1990s when his Board revolted against his inter-meeting rate cuts:
“Chairman Greenspan found himself hobbled by a near open revolt of FOMC governors. The Fed “curtailed the authority of its chairman, Alan Greenspan, to reduce rates on his own” in between meetings.
Greenspan cut rates half a point just a few days prior to the February FOMC meeting, despite some signs of economic recovery. This upset the FOMC Board of Governors.
Why would a Fed chair risk the ire and support of his board – and only a few days before the next FOMC meeting?
One cannot help but notice how unusual this action was: A half point cut, made by a Fed chair acting alone, mere days before the next FOMC meeting and with the Dow already in rally mode. While one can never know exactly what another person is thinking, Greenspan’s actions certainly have the appearance of attempting to “goose” the equity markets.”
-excerpt from Bailout Nation
Say what you will about the Bernanke plan, but at least he is trying to save the economy — not rescue speculators.
Bernanke Invocation of ‘War Powers’ Undermines Fed Bank Chiefs
Craig Torres and Steve Matthews
Bloomberg Dec. 9 2008