| Happy Friday, everyone. Last week, I talked a bit about the low-profile, super-important competition to become Joe Biden's agriculture secretary. This week, I've been thinking about an even lower-profile choice Biden has to make: who to appoint to the Federal Reserve board of governors. This may seem like a strange thing to focus on, but the Fed is extremely consequential, and past Dem presidents like Barack Obama have ignored it to their detriment (and Trump, to his credit, has not). The Fed got a bit of press this week with the Senate narrowly voting against Judy Shelton, a gold standard-backing, crankish nominee Donald Trump has put forward. Shelton could still make it through in the next couple weeks but her odds look dire. If Shelton doesn't make it, there will be two open Fed governor seats (out of seven) for Biden to fill; if, as is likely, some additional members of the board resign, he could have the ability to pick a majority of its members. To simplify drastically, the Fed has two major roles: regulating banks and related financial institutions; and conducting monetary policy (that is, adjusting the money supply to maintain stable inflation and low unemployment). Both of these are crucially important — the former especially for its potential to prevent financial crises — but the latter makes the Fed the single most important economic agency in the United States. By pushing economic activity closer to its potential, the Fed generates, on an ongoing basis, hundreds of billions if not trillions of dollars worth of economic output that would otherwise be lost, with massive positive humanitarian consequences both in the US and abroad. In recent decades, this has been achieved through a "loose" policy of low interest rates and aggressive Fed purchases of bonds ("quantitative easing"). When the Fed fails, usually by being too "tight" in its policies, the consequences are equivalently dire. And good monetary policy is especially important during recessions and recoveries like the one the US finds itself in right now. This is an odd recession, precipitated by a pandemic incapacitating or killing millions of workers and consumers, as well as preventing certain kinds of economic activity (indoor dining, gyms, etc.) from taking place. Fixing the overall pandemic has to come first. But as it gets under control, ramping economic activity back up is going to be crucial. The Fed's monetary policy is decided by the Federal Open Market Committee, or FOMC. At full capacity, the FOMC has 12 members: seven members of the Federal Reserve board of governors, who are appointed by the president and confirmed by the Senate, plus the head of the New York regional Fed and a rotating group of four of the other 11 regional banks (Minneapolis, Dallas, Cleveland, and Philadelphia are in right now). The regional bank presidents are selected by members of their boards of directors, subject to the approval of the nationwide board of governors; the board of governors also has some say in who the directors of the regional banks are. The upshot is the president has limited control over the selection of five of the 12 important decision-makers, and a high level of control over the other seven. And with two of those seven seats currently vacant, Biden could have the ability to shift the FOMC immediately. Christopher Waller, one of Trump's nominees for those vacancies, is widely expected to be confirmed during the lame-duck period, but that should be fine for Biden. Waller, while a Trump nominee, is a hugely respected economist who aligns with Biden's interest in "loose" policy meant to push down unemployment and get inflation up from its current low point. That gets at a pleasant dynamic for Biden and the Fed: Policy there isn't as polarized along party or ideological lines as policy in Congress is. There are a huge number of libertarian or conservative-leaning economists and other candidates for Fed jobs who also favor keeping interest rates low and using bold measures to speed up the recovery. George Mason's David Beckworth and Bloomberg's Karl Smith both come to mind as libertarian-leaning figures who'd fit the bill. Hell, Jay Powell, the current Fed chair, is a Republican and extremely committed to loose money; it would make a lot of sense for Biden to reappoint him when his term is up in February 2022. Of course, there are Democrats who'd do a good job, too. Some names I've heard touted from advocates for high-employment monetary policy are Julia Coronado, a veteran Fed economist; Obama Treasury Department veteran Ernie Tedeschi; Paul McCulley, a former chief economist at the investment manager PIMCO; Fed veteran Claudia Sahm; former Minneapolis bank president Narayana Kocherlakota; and Bill Spriggs, an economist at Howard University and chief economist for the AFL-CIO. Spriggs would only be the fourth Black member of the board of governors, a testament to how terrible the institution has done on racial diversity over its 107-year history. Luckily there are a lot of excellent Black candidates, from Michigan State University's Lisa Cook (an adviser to the Biden transition) to the Economic Policy Institute's Valerie Wilson to Raphael Bostic, currently the head of the Atlanta Fed. Roger Ferguson, who served as vice chair from 1999 to 2006, might be persuaded to return if he takes Powell's place as chair. It's not clear just yet how many Fed picks Biden will get or who the Senate will let him confirm, but it's a critically important part of his transition to think through. The Obama administration did not always prioritize Fed appointments as much as it should, and those it did pick, like Harvard economist Jeremy Stein, often argued for de-prioritizing economic recovery for fear of creating "bubbles." Biden can't afford to make similar mistakes that cost jobs and slow the current recovery. —Dylan Matthews, @dylanmatt | 
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