Garrett to Yellen: has the Fed become politicized?

WASHINGTON, D.C. – Rep. Scott Garrett (NJ-05) today called on Federal Reserve Chair Janet Yellen to address concerns that sitting Federal Reserve governors are engaging in political activity as a follow-up to a widely covered (please see below) exchange they had at a September 28th House Financial Services Committee hearing.

At the hearing, Garrett asked Chair Yellen whether she believes a conflict of interest would exist if it was discovered that a sitting governor was actively seeking a high-level Executive Branch position in a future administration. Chair Yellen testified that she was “not aware” such a scenario would constitute a conflict of interest, but that she would have to consult Federal Reserve counsel in order to provide Congress with a complete answer.

This question was brought up in light of Fed Governor Lael Brainard’s vote at the latest Federal Open Market Committee (FOMC) meeting. Garrett cited revelations earlier this year that Federal Reserve Governor Lael Brainard had made the maximum allowable contribution to Hillary for America. There have also been several news reports over the last few months stating that Governor Brainard is on the “short list” for a high-level position in a potential Clinton Administration, including possibly Treasury Secretary.

The Federal Reserve prides itself more than anything on its monetary policy "independence", and countless Fed chairs have assured Congress and the public that the Fed is not subject to political influence.  But when a sitting Fed Governor so brazenly engages in politics, Congress has a right to demand answers. Garrett asked the following questions to Chair Yellen. Click here to read the full letter.

1. Do you believe that the Federal Reserve’s monetary policy independence is in any way compromised in the eyes of the public when a sitting governor – or any member of the FOMC – contributes to a political campaign?

2. Do you believe there is any scenario where FOMC members should recuse themselves from participating or voting in FOMC meetings if they contribute to political campaigns while they are members of the FOMC?

3. Do you believe FOMC members should recuse themselves from participating or voting in FOMC meetings if they have been in discussions or negotiations for high-level Executive Branch positions in a current or future administration while they are members of the FOMC?

4. While contributions to a political campaign by Federal Reserve employees are legal under the Hatch Act, does the Federal Reserve have any kind of internal policies or procedures to determine when an FOMC member should recuse themselves from voting at FOMC meetings or from other matters pending before the Federal Reserve due to their political activity?  If not, do you believe the Federal Reserve should establish such policies or procedures?

5. A Bloomberg news article written after the September 28th hearing stated that a spokesperson for the Federal Reserve claimed Governor Brainard has not “been in conversations with either [presidential] political campaign.

• Has Governor Brainard been in discussions or negotiations with Secretary Clinton’s transition team, or with any individuals who would be in a position of recommending cabinet members or other candidates for senior administration positions should Secretary Clinton win the election in November? 
• Has Governor Brainard submitted a resume or any personal background materials to anyone who would be in a position of vetting candidates for senior positions in a Clinton administration?
• Do you believe it would be appropriate for a sitting Federal Reserve governor or FOMC member to engage in such discussions or to accept an offer to serve in a future administration, without first recusing themselves from FOMC or other Federal Reserve matters?  Do you believe such discussions or negotiations constitute a conflict of interest and could compromise the Federal Reserve’s independence in the eyes of the public?  (It should be noted that such a scenario is not without precedent.  In his 2014 memoir, former Treasury Secretary Timothy Geithner recounts discussing with then-Senator Barack Obama the possibility of serving in an Obama Administration while he was President of the New York Federal Reserve. That meeting took place on October 17th, 2008.  Twelve days later, Geithner participated in an FOMC meeting in which the Committee unanimously decided to reduce the federal funds rate by fifty basis points.)

6. After news reports appeared mentioning Governor Brainard as being on the “short list” for a high-level Executive Branch position, should she have publicly stated that she will not entertain conversations regarding a position in a Clinton administration without first recusing herself from FOMC matters, or until she is no longer employed by the Federal Reserve?  Would such a statement have helped preserve Federal Reserve independence?

7. Subpart F of the Standards of Ethical Conduct for Employees of the Executive Branch lays out a number of prohibitions and requirements for recusal if the official duties of an Executive Branch employee conflict with the interests of an entity they are seeking employment with.

• What codes of ethical conduct does the Federal Reserve have in place to govern employee conduct when they are seeking outside employment?  Please provide a copy of any such codes or policies of ethical conduct.

Coverage of September 28th Financial Services Committee hearing:

Wall Street Journal- Lawmaker Grills Yellen Over Brainard’s Donations to Clinton
Reuters- Lawmaker accuses Fed of being 'cozy' with Obama administration
Bloomberg- Yellen Cornered by Lawmaker in Heated Exchange Over Fed Politics
Morning Consult- Yellen Defends Fed From Accusations of Partisanship
CNN Money- Congressman grills Fed chief on political motives

###