What's at stake in the battle for reserve bank power

• Even after that, legal rulings indicate that the reserve banks' authority is downstream of the presidentially appointed Board of Governors — which translates into the broad ability to oversee hiring, firing, and budgets.

State of play: The reserve bank presidents — who vote on a rotating basis on monetary policy and have extensive management responsibilities — are reappointed on a five-year calendar, a juncture at which the Board of Governors must approve each to remain in office.

• As it happens, that deadline is coming up at the end of February, six months away.
• Usually, this is an inconsequential, unnoticed event; we can't recall a bank president departing based on the reappointment calendar since Narayana Kocherlakota left the Minneapolis Fed a decade ago.
• However, if President Trump appointees constitute a majority of the Board of Governors by early next year, it could be a ripe opportunity to try to shuffle bank presidents, seeking candidates more in line with the president's desires.
• If Trump wins his court battle to fire Fed governor Lisa Cook, and the Senate confirms both her replacement and Stephen Miran (Trump's nominee for a vacant seat), Trump appointees would be a majority of the committee (including sitting governors Christopher Waller and Michelle Bowman).

The intrigue: There are already some hints that Trump's board appointees have concerns that the reserve banks have been too sympathetic to Democratic priorities, including with research on climate, race, and inequality.

• Waller and Bowman abstained from the vote to appoint Austan Goolsbee, a former adviser to President Obama, to lead the Chicago Fed in 2023, Bloomberg first reported.
• The private-sector boards of directors of the banks have added more members from nonprofits and labor unions in recent years, and a Manhattan Institute report found the board members' political giving has shifted to the left.
• In 2023, 34% of reserve bank board members donated to only left-wing candidates and causes, the report found, while 8% donated only to right-wings equivalents. Those numbers were roughly balanced a decade earlier.

Beyond the details of the reappointment process, the Board has profound power over the reserve banks.

Zoom in: A 2019 memorandum from the Justice Department's Office of Legal Counsel on the constitutionality of the reserve banks found that their presidents are "inferior officers," deriving their authority from the presidentially appointed governors under the Constitution's appointments clause.

• That opinion also asserted that reserve bank presidents are not subject to dismissal only for cause, but rather that they are "subject to plenary supervision and control" by the Board of Governors.
• The Federal Reserve Act states to "suspend or remove any officer or director of any Federal reserve bank, the cause of such removal to be forthwith communicated in writing."
• That implies the Board has the latitude to fire reserve bank presidents or overhaul their boards of directors as long as they complete the paperwork.

Between the lines: The Federal Reserve system is a Rube Goldberg machine, with its complex structure the legacy of the fraught political battle over establishing the central bank in 1913.

• But the power of a majority of the Board of Governors — its members appointed by the president and confirmed by the Senate — is the mechanism through which the reserve banks preserve some democratic legitimacy.
• The open question ahead is how Trump appointees to the board will seek to use that accountability — and whether they pursue more radical change than has been the norm for over a century.