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Homework answers / question archive / The Federal Reserve System operates under a seven-member Board of Governors
The Federal Reserve System operates under a seven-member Board of Governors. The term of a governor is fourteen years, and governors usually cannot serve more than one term (except for an additional partial term to fill a vacancy—reference Greenspan’s terms). Terms are staggered, so that one governor’s term expires every other year. Governors can only be removed from office “for cause”—that is, for abuse of their office and not just for policy disagreements. In what way do the long terms and secure tenure of Federal Reserve governors help to overcome the problem of time-inconsistency in monetary policy? In practice, Fed governors rarely serve out their full fourteen-year term. Is that a problem? Discuss.
The Federal Reserve is considered as an independent body that is operated by the Governor board with seven-members. A governor is one who has the right to implement monetary policy after discussing it with other board members. A governor can be a broad member for fourteen years, but his rights are expired every other year. This action is used to protect a governor's rights and ensure that the governor should not use his rights for unfair practices.
A government should not make his decision due to political influence as he has to be independent in his decision and tries to decide an effective policy according to the need of the economy.
The secured long-term agreement helps to maintain the stability in the ideology of a governor due to which similar monetary policies can be continued to improve its efficiency. Inconsistency of rights allows a governor to make a decision for a shorter time period so that he can improve his image as a governor. As a result, consistent monetary policy can be implemented by using the long-term and secured agreement.
It is also given that the governors generally do not serve their full fourteen years. It might raise the problem of inconsistency in the ideology of the Federal Reserve board of governor that further leads to change in the monetary policy over a period of time.
