Peter Conti-Brown on *Restoring the Promise of Federal Reserve Governance*

Episode Summary

Executive Summary: Peter Conti-Brown argues that Federal Reserve governance has drifted far from the 1935 design that made the Board of Governors the public, supervisory center of the system. He shows how compensation, vacancies, opaque Reserve Bank president selection, and declining governor participation have weakened accountability and proposes reforms: higher governor pay, more transparency, reduced FOMC size, and better political cooperation on appointments.

Main Topics: Origins and redesign of Fed governance (Priority: 5/5): Conti-Brown traces the Fed from the 1913 Wilsonian Compromise to the 1935 Banking Act, arguing that 1935—not 1913—is the key governance template because it strengthened public accountability and Board authority over Reserve Banks. Compensation drift and incentive misalignment (Priority: 5/5): He presents historical salary data showing a widening gap between Board governors and Reserve Bank presidents, with governors underpaid relative to responsibilities and private-sector alternatives, especially in recent decades. Opaque Reserve Bank president selection (Priority: 5/5): The conversation highlights the highly opaque process for selecting Reserve Bank presidents, including examples like Neil Kashkari and John Williams, and argues that the lack of public transparency undermines legitimacy. Declining governor influence in the FOMC (Priority: 5/5): Conti-Brown documents a secular decline in governor participation in FOMC transcripts since the late 1980s, with non-voting Reserve Bank presidents speaking more often than governors despite the statutory design. Groupthink and intellectual diversity (Priority: 4/5): The discussion examines whether the Fed has become overly conformist, noting governors’ tendency to align with the chair and Reserve Bank presidents’ increasing insider status, while calling for more intellectual diversity in policy debates. Federal Reserve reform proposals (Priority: 5/5): Conti-Brown proposes practical reforms that do not require sweeping statutory change: fill vacancies faster, shorten or restructure FOMC participation, increase transparency in Reserve Bank appointments, and raise governor salaries significantly.

Key Arguments: The Federal Reserve’s current governance structure is better understood through the 1935 redesign than through the 1913 founding framework. The Board of Governors is supposed to be the public-facing accountability mechanism, but it has become weaker over time relative to the Reserve Banks. Salary erosion at the Board makes it harder to attract and retain highly qualified governors who are not independently wealthy. Reserve Bank president appointments are opaque and often appear detached from democratic accountability or clear public criteria. FOMC participation has shifted away from governors toward Reserve Bank presidents, contrary to the original institutional design. More transparency and a smaller, more focused FOMC would improve deliberation and accountability. The Fed benefits from intellectual diversity, but current appointment processes do not reliably produce it. Vacancy politics and partisan tit-for-tat in the Senate have harmed Fed governance and should be reduced through a norm of confirmation cooperation.

Data Points: 1914 Board of Governors salary: $15,000 (about $387,000 in today’s dollars) - Initial statutory salary level for Fed board members in the 1913/1914 era New York Fed president salary: $30,000 - Early compensation level cited as double the Board governor salary Atlanta Fed president salary: $9,000 - Early regional bank president compensation Kansas City Fed president salary: $7,500 - Early regional bank president compensation Chicago Fed president salary: $20,000 - Early regional bank president compensation Roy Young resignation: 1930 - He left the Board to become Philadelphia Fed president, citing salary as a motive Year of Fed redesign: 1935 - Banking Act of 1935 remade Fed governance and created the Board of Governors FOMC composition after 1935: 7 governors and 5 Reserve Bank presidents - Committee structure described as preserving a Board majority Transcript sample period for FOMC participation: 1980–2013 - Period used to count speaking participation in FOMC transcripts Reserve Bank presidents’ participation trend: Higher than governors by the end of the sample - Non-voting presidents spoke more often than governors in later years Board chair salary today: About $200,000 - Current pay level cited for Jay Powell as chair Average Reserve Bank president salary today: Closer to $400,000 - Current average salary level cited for Reserve Bank presidents Governors’ inflation-adjusted compensation trend: Significantly eroded over time - Conti-Brown argues governors became undercompensated relative to history and duties 2000 change to compensation schedules: Board chair and vice chair attached to executive-office pay scales - Administrative change affecting governor pay structure 2010 governance change: Class A directors no longer vote on Reserve Bank president selection - Reduced banker influence in the selection process

Pivotal Quotes: "The Fed is, I'd argue, the most powerful institution in government, more powerful even than the Supreme Court." — Peter Conti-Brown: Explaining why Board governance and accountability matter so much "What we see ... is a secular decline ... such that the governors participate less than either the voting or non-voting presidents, substantially less." — Peter Conti-Brown: Describing his FOMC transcript analysis and the shift in meeting influence "That doesn't sound like democratic institutions to me. That sounds like secret societies." — Peter Conti-Brown: Critiquing opaque Reserve Bank president selection processes

Implications: If unchanged, Fed governance may keep drifting toward opacity, weak accountability, and underpowered governors. Conti-Brown’s reforms aim to improve legitimacy, policy debate quality, and talent recruitment at the center of U.S. monetary policy.