Negativity About Miki Bowman Reveals The Fed’s Political Colors

Why isn’t Donald Trump-nominee Miki Bowman on a glide path to approval as Federal Reserve Vice Chairman? The answer is politics.

Though the central bank’s partisans will claim in breathy tones that the Fed’s thinking and decisions aren’t compromised by the tawdry politics that so many associate with Washington, the reality is quite different. And it’s rooted in the unspoken truth that while independent in theory, there’s little allowance for independent thinking inside the Fed.

Consider past Fed nominee, Judy Shelton. Shelton had the credentials, including a PhD in economics that Fed Chairman Jerome Powell lacks. The problem? Shelton was a known proponent of stable money as a measure of value, as in Shelton was known to prefer a commodity standard to achieve dollar-price stability as a replacement for the dollar instability foisted on us by fallible PhDs.

Notable about Shelton’s views was that she was nominated not for Fed Chairman, but Governor. More to the point, even if Shelton had been the nominee to run the Fed, there still would have been no way for her to impose her monetary views on the central bank. For one, the Fed prizes consensus, and the consensus among Fed officials has long been that commodity, or gold standard systems of dollar management are hopelessly outdated. Second, the dollar’s exchange value has never been part of the Fed’s policy portfolio as is.

Yet precisely because Shelton revealed a streak of independent thought, her nomination was met with all sorts of criticism. Implied in her failure to attain approval was that independence at the Fed is much more an affectation than it is reality.

With Bowman, she’s been known to stray from rate cutting consensus on occasion, but more troubling to the rigid minds inside the central bank, Bowman is a bit more skeptical about the worth of bank capital requirements. Bowman’s skepticism is warranted, which is not a political assertion. In truth, it’s just a comment that markets are incredibly complicated.

To see why, contemplate this question: what should interest rates be? Tick tock, tick tock. It’s not simple to answer precisely because rates of interest are a consequence of infinite decisions made every second of the day by individuals, financiers, and producers around the world. In other words, an interest rate is an effect of wildly sophisticated markets at work.

The correct amount of bank capital is no different. And it’s no different from interest rates exactly because no bank is the same. What should the capital requirement for banks be? That’s like asking what the interest rate should be. Markets will quite simply tell banks how much capital they should have in reserve.

Despite this, Fed officials want to decree specific capital requirements, or want to defer to Basel III. Ok, but why the deference? Will regulators do a better job than the markets? It’s a question worth asking.

In Bowman’s case, it’s not as though she wants to aggressively turn away from Fed oversight and Basel on the matter of capital requirements, but it’s that she’s a bit more skeptical about how effective top-down rules are. Meaning, Bowman would be a good voice of occasional opposition inside the Fed such that decisions would be informed by a greater range of thinkers. But for one problem, the Fed disdains independent thinking more than it does its reputation for independence.

So, here we are. Bowman’s years at the Fed make her eminently qualified, but those same years seem to have unearthed in the nominee an independent streak that is plainly not allowed. Some would say Bowman’s problems are political, and they would be right.