Appointing the Fed Chair

Abstract

Several scholars observe presidential appointment as a principal mechanism for the president to influence the bureaucracy in the United States. In order to study presidential influence on the Federal Reserve Board, which is widely considered to be one of the most independent governmental agencies, this article examines the influences of the Chairs and Governors of the Board appointed by Democratic and Republican presidents separately on monetary policy. The results show a significant impact of the presidential appointment of the Fed Chair, but not of the Governors. Also, when presidential popularity is declining, the serving president is likely to influence the Fed to stimulate the economy and improve his popular standing. However, this politically-motivated influence is present only under the Fed Chair appointed by the serving president, but not under the Chair appointed by the previous president.