Federal Reserve Appointments and the Politics of Senate Conﬁrmation

Federal Reserve appointments and the politics of Senate conﬁrmation

Caitlin Ainsley University of Washington [email protected]

Abstract This paper examines the politicization of Federal Reserve (Fed) appointments. In contrast to the extant appointment literature’s almost exclusive focus on ideological proximity as a predictor of Fed nominations and confirmations, I theorize that senators will be more likely to vote against confirmation when their constituents have little confidence in the Fed because it allows them to more credibly defer blame on the Fed for economic downturns. Drawing on novel estimates of state-level confidence in the Fed as well as new common space estimates of senators’ and central bankers’ monetary policy preferences, I demonstrate that when constituents do not have confidence in the Fed, senators are less likely to vote in favor of confirmation regardless of their ideological proximity to the nominee. The results have important implications for the ability to fill Fed vacancies and, in turn, the balance of power between the Fed and regional bank Presidents in the monetary policymaking process.

Keywords: Federal Reserve, Senate Conﬁrmation, Public Opinion, Central Bank Preferences

JEL Codes: P16, E58, D72 1 Introduction

This article investigates the politics of Senate confirmations for Federal Reserve (Fed) nominations. Scholars of central banking have long recognized the importance of the appointment process for the politics of monetary policymaking. For many scholars, that is considered a primary channel through which partisan politics affects decision-making at the central bank (Adolph, 2013; Chappell, Havrilesky and McGregor, 1993; Chappell, McGregor and Ver- milyea, 2004). Given that conventional wisdom, it is unsurprising that presidential power to nominate individuals to the Fed’s Board of Governors and its associated leadership positions has received considerable attention in the extant literature. However, with a few notable exceptions including Morris (2000), Chang (2001, 2003), and Schnakenberg, Turner and Uribe-McGuire (2017), theories of central bank appointments largely have overlooked the Senate’s prerogative to confirm Fed nominees. Furthermore, even in those cases when the Senate has been incorporated into theories of central bank appointments, scholars have assumed that ideological proximity to the nominee is the single predictor of senators’ support. In this article, I revisit that near universal assumption in the extant literature and argue that a narrow focus on ideological proximity as the determinant senators’ confirmation votes is misguided in the context of appointments to the Fed. Drawing on the recent research of Binder and Spindel (2017), which highlights the importance of the Fed acting as Congress’ scapegoat for poor economic performance, I argue that the Senate confirmation process for Fed nominees has become another instance in which we observe senators strategically positioning themselves effectively to shift blame to the Fed. Specifically, I expect the degree to which ideological considerations explain confirmation votes to be conditional on how senators’ constituents perceive the Fed at the time of the nomination. All else equal, those senators whose constituents express distrust in the Fed ought to be more likely to vote against confirmation regardless of their ideological proximity to the nominee. By not supporting confirmation regardless of a given nominee’s ideology, senators with constituents who distrust

1 the Fed distance themselves from the Fed and preserve their ability to assign blame to an institution their constituents are primed to view unfavorably. By a similar logic, we should observe senators conditioning their support for a nominee only on ideological proximity when their voters exhibit confidence in the Fed. To explore the foregoing implications empirically, I examine ten years of Senate confirmation votes for Fed nominees dating back to 2009.1 Observing the relationship between ideological proximity, public trust, and confirmation voting behavior requires a substantial data collection effort creating novel measures of both ideological proximity and state-level public opinion. To scale the ideologies of nominees and senators on a common space, I draw on the twice-yearly testimonies of the Fed Chairperson before the Senate Committee on Banking, Housing, and Urban Affairs. Similar to Chang (2003), I code from those transcripts senators’ stated positions during testimonies to create bridging observations for montetary policy preferences that I can then map on to the entire Senate population. Next, I employ results from an annual Gallup survey of a nationally representative sample to estimate a multilevel poststratification regression model, generating yearly estimates of state-level public confidence in the Fed. Together, I use those measures of monetary preferences and public opinion to examine the degree to which either explains confirmation votes for a sample of more than 1500 votes across 15 Senate confirmations. Across specifications incorporating a battery of controls for senators’ partisanship, the party of the appointing president and the president’s approval rating at the time of appointment, I find that when low levels of support for the Fed are evident in their home states, senators are significantly less likely to vote to confirm a Fed nominee. Furthermore, senators are more likely to support ideological allies only when their constituents’ confidence in the Fed is high. However, when perceptions of the Fed become less favorable, the effect of ideological proximity on confirmation votes 1Prior to 2009, the majority of confirmation votes were taken as voice votes with neither a recorded roll call nor record of the chamber’s division. In the two decades from 1988 to 2008, only 5 of the 19 Fed nominations were taken by roll call.

2 declines and ultimately disappears. That result holds regardless of partisan alignment with the appointing executive and presidential approval ratings. While the suggestion that senators’ confirmation votes are not driven entirely by ideological proximity is well-established for nominations to the federal judiciary (Cameron, Cover and Segal, 1990; Kastellec, Lax and Phillips, 2010), similar patterns have not been explored with respect to central bank appointments. In addition to contributing to our understanding of the appointment process more generally, the empirical findings presented here have important implications for the political environment in which appointments are made and monetary policy is conducted moving forward. One implication of the results with consequences we already can observe is that declining confidence in the Fed ought to make it more difficult to fill vacancies on the Board. In practice, vacancies on the seven-member Board increasingly have become common and long-lasting. Most recently, we have seen two of the seven senate-confirmed seats at the Fed remain vacant from 2018 through 2020 as the Republican-led Senate allowed the Trump administration’s nominations to lapse for fear they did not have the votes to confirm either nominee. In the complex policy domain of central banking where decision-makers assign substantial value to the deliberative process and collective decision-making by committee (Blinder and Morgan, 2005), the inability to fill vacancies stands potentially to worsen the quality of policy outcomes. Furthermore, as I will turn to in the concluding discussion, the inability to fill vacancies has critical implications for the balance of power on the FOMC. Persistent Board vacancies arising from failed confirmations create an opportunity for presidents of the Federal Reserve’s regional banks to outnumber Governors at FOMC rate-setting meetings and thereby change the monetary policy strategy of the FOMC fundamentally moving forward.

2 Background

Research on the political economy of monetary policymaking has long recognized the importance of the appointment process for understanding the politics of central banking. In

3 their foundational empirical study of Fed policymaking, Chappell, Havrilesky and McGregor (1998, p. 185) concluded that “the appointment process is the primary mechanism by which partisan differences in monetary policy arise.” That finding, coupled with the proliferation of monetary delegation to independent central banks, gave rise to an extensive body of research examining the “partisan” central bank appointments hypothesis (Keech, 1994) — i.e., in the United States, whether central bankers appointed by Republican presidents are more inflation averse than those appointed by Democratic presidents. Considerable empirical evidence exists suggesting that appointments to the Fed exhibit partisan biases. In addition to the robust early findings presented by Havrilesky (1993, 1994), Havrilesky and Gildea (1992), and Chappell, Havrilesky and McGregor (1993), more recent research has identified similar patterns both in the United States (Chappell, McGregor and Vermilyea, 2004; Chang, 2003) and abroad (Schaling, 1995; Adolph, 2013; Ainsley, 2017). While some scholars reasonably have questioned the degree to which partisan appointments stand to influence monetary outcomes given the size of the decision-making committee, long terms of appointment, and uncertainty over nominees’ preferences (Keech and Morris, 1997; Morris, 2000), a general consensus exists that the appointments themselves are best understood as an avenue through which partisan politicians exercise some influence over the monetary policymaking process. Theories of central bank appointments largely build on the foundational theoretical framework and justification for monetary delegation put forth by Rogoff (1985). Rogoff’s model of monetary delegation compares inflation outcomes under two conditions: (1) when a benevolent social planner with preferences over inflation and output maintains autonomy over monetary policy, and (2) when they instead delegate monetary policymaking authority by selecting a central banker to conduct monetary policy. Rogoff (1985) shows that under certain conditions, the time-inconsistency of monetary policy preferences as established by Kydland and Prescott (1977) makes it such that the social planner can better achieve their own inflation goals by delegating policymaking authority to a central banker who is

4 more inflation averse than themselves.2 That result underlies the intuition behind monetary delegation to independent central banks and the notion of “conservative” central bankers. While Rogoff (1985) does not explicitly incorporate or speak to the possibility of partisan appointments in his seminal theory, extensions of this model demonstrate how partisan influences and individual incentives can emerge in such generalizable models of monetary delegation. Most recently, Adolph (2013) demonstrates both theoretically and empirically that right-leaning politicians are likely to appoint more conservative central bankers than their left-leaning counterparts. Similarly, in a model where a single government official dele- gates by selecting the preferences of a monetary policymaker, Ainsley (2017) shows that the preferences of an appointed central banker will be a function of the appointing government’s preferences as well as the expected state of the economy in which policy is to be conducted. Notably missing from those general theories of delegation as applied to central bank appointments is a role for the Senate and its confirmation prerogative. In each model men- tioned thus far, a single appointing principal selects a single monetary policymaker without any checks or institutional constraints on whom they select. While the theories are not written specifically about Fed appointments, they reflect a larger body of theoretical and empirical research that for the most part assumes that central bank appointments depend only on the preferences of the appointing president (Morris 2000, 71). For example, Woolley (1984), Chappell and McGregor (2000), Alt (1991), and Waller (1992) all consider Senate 2As noted in Adolph (2013, p. 246), the argument often is oversimplified and overstated in the extant research. For one, Rogoff (1985) shows that the social planner can achieve their preferred inflation outcomes better by delegating monetary authority to an individual who is more conservative than the planner him or herself, but not infinitely more or uniformly conservative as is often described. Furthermore, a substantial research agenda building on Toma (1982) and Shugart and Tollison (1983), among others, challenges the notion of central bankers as social planners and highlights the importance of central bankers’ preferences and the bureaucratic systems in which they operate.

5 confirmation to be little more than a “rubber stamp” that is of no substantive consequence to presidents’ appointment strategies. Most recently, Salter and Luther (2019) put forth a theory of how the preferences of the president and Senate interact with the institutional design of the Fed to shape central bankers’ decision-making. In doing so, however, the assumption is adopted that the president and Senate are acting in unison with one another. Both Hammond and Hill (1993) and Morris (2000) take direct issue with such simplifica- tions, demonstrating why we should not infer that the president dominates the appointment process merely because we observe relatively low levels of conflict during final confirmation votes. While presidents may condition their nominations on the preferences of the Senate, selecting only those individuals they know can garner sufficient confirmation support, several instances can be found in which nominations are either allowed to lapse or have been explicitly be withdrawn prior to a confirmation vote for lack of support in the Senate.3 Speaking on presidential appointments more generally, Hammond and Hill (1993, p. 57) conclude “that both the Senate and the president have a fundamental role in the politics of appointments.” Recognizing the limitations of theories that simplify away the Senate confirmation stage, several scholars of the Fed have proposed appointment models that explicitly incorporate Senate confirmation. Morris (2000) represents one of the first theories to model Senate confirmation explicitly by incorporating the Senate as a third actor in a spatial model of appointments. In that theory, the president, Senate, and Fed are modeled as unitary actors with preferences on a unidimensional ideological scale. On the basis of that modeling exercise, Morris (2000, p. 83) finds “the president’s capacity to mold the policy preferences of the Fed is constrained by the need to win Senate approval for Fed nominees.”. Chang (2001, 2003) similarly incorporates the Senate confirmation vote in a spatial model of appointments that relaxes the unitary actor assumption to explore whether Fed appointments exhibit the properties of a move-the-median game. Finally, Schnakenberg, Turner and Uribe-McGuire 3The nominations of both Marvin Goodfriend and Nellie Liang met that fate in 2017 and 2019, respectively.

6 (2017) further incorporate the institutional reality of uncertainty into a similarly structured appointment model where the president’s ability to appoint ideological allies is constrained by requiring a majority of the Senate to support confirmation. While such spatial models of Fed appointments that incorporate the Senate confirmation stage provide a theoretically rigorous foundation for examining partisan theories of central bank appointments, their explanatory reach is limited in important ways by the models’ narrow focus on the role of ideological proximity in determining support for a nominee. That limitation is, of course, by construction: extant theoretical models of central bank appointments all have assumed that both appointing presidents and (if included) confirming senators select central bankers in such a way that minimizes the distance between expected monetary policy outcomes and their most-preferred policy. While the aforementioned research on the partisan appointments hypothesis provides some justification for the theoretical focus on nominees’ ideologies, evidence exists to suggest that there is more to the story. For example, Smales and Apergis (2016) partition recent time series of appointments into discrete periods and find that evidence of partisan influence is limited to the period from August 2007 to Jan- uary 2013, marked by the Great Recession. Thus, while the ideological proximity of senators and Fed nominees that is at the core of extant theories of central bank appointments may explain confirmation votes partially, we ought to consider the possibility that confirmation votes are neither always nor entirely driven by ideological considerations. To observe an instance in which a purely ideological explanation falls short, consider the following example of current Fed Chairman Jerome Powell’s Senate confirmation votes. Since his first nomination to the Federal Reserve Board of Governors in 2012, Powell has faced a Senate confirmation vote on three separate occasions. At his first confirmation vote, 74 senators voted to confirm his appointment to the Board on a term set to expire in just two years. At the conclusion of his expiring term, President Obama re-nominated Powell to retain his seat for a full 14-year term to run from 2014 to 2028. While Powell’s second nomination was again confirmed by a bipartisan 67-vote majority, including all Democratic

7 senators, a coalition of 23 Republican senators joined by Senator Bernie Sanders (I-VT) voted against Powell’s appointment. Less than four years into his first full-term at the Fed, President Trump nominated Powell to replace Janet Yellen as Chairman of the Board. While the 115th Senate confirmed Powell to his current position as Chairman of the Fed with a substantial 84-vote majority — the largest for the position of Fed Chairperson in recent history — the composition of the 13-member bipartisan coalition opposing his nomination is illuminating. While four Republicans who opposed Powell’s nomination previously also opposed his promotion to Chair (Cruz R-TX, Lee R-UT, Paul R-KY, and Rubio R-FL), 15 Republican senators who had opposed Powell’s appointment to the Board in 2014 now supported his appointment as Chair. Furthermore, Powell’s appointment as Chair did not receive the unanimous support among Democratic senators that it had just three years before: six Democrats who had supported his 2014 nomination voted against his appointment as chair.4 If ideological proximity alone can explain senators’ votes in confirmation proceedings, how do we make sense of the apparent vote-switching across the Powell nominations? One perhaps reasonable explanation for senators changing their support across confirmations could be that they face substantial uncertainty about the ideologies of nominees that is resolved for subsequent confirmations. In the case at hand, Powell may have appeared ideologically proximate to many Democrats when Obama reappointed him in 2014, but between 2014 and 2017 he revealed himself to be more ideologically distant — and vice versa to those Republicans who shifted from opposing to supporting his confirmation. While uncertainty undoubtedly exists about nominees’ ideologies and how they will conduct policy 4The Democratic senators who had supported Powell’s appointment to the Board previously but opposed his elevation to Chairman include Blumenthal (D-CT), Booker (D-NJ), Feinstein (D-CA), Gillibrand (D-NY), Markety (D-MA), and Warren (D-MA). The opposing coalition was joined by Harris (D-CA) and Merkley (D-OR), who had not cast votes for his 2014 confirmation.

8 if confirmed, the lack of vote-switching between Powell’s first and second confirmations to the Fed is inconsistent with that explanation. First, Powell received unanimous support from Democratic senators in both of his first two confirmations. Second, vote-switching within the Republican party across the two confirmations is mixed. Of the 20 Republicans voting against Powell’s first confirmation, five shifted to supporting him at his second; of the 23 Republicans voting against confirmation at his second confirmation, eight had voted in favor of confirmation just two years before. Thus, uncertainty about appointees’ preferences and information asymmetries certainly exists and reasonably can be expected to drive some switching across confirmations, but there appears to be more to this story in practice. Alternatively, one might point to the partisanship of the appointing presidents to explain Powell’s pattern of votes: the six democrats who opposed President Trump’s nomination of Powell to chair after supporting Obama’s nomination to the board, coupled with the 15 Republicans who supported Trump’s nomination after opposing Obama’s, did so to remain aligned with the agenda of their own party’s president and against the opposing party’s president. While that seems both reasonable and consistent with an extant literature on presidential appointments and Senate confirmations, it cannot explain why some senators voted in accordance with such motivations and others maintained their support for or oppo- sition to Powell as they had following Obama’s nomination. At the very least, this example demonstrates the need for further theorizing about the conditions under which one incentive dominates the other during Senate confirmations. In his call for scholars to take a “multi-institutional approach” to studying the Fed, Morris (2000, p. 32) argues “scholars must be willing to reconsider and reevaluate past assumptions about the preferences of the Fed and other relevant policymakers and about the institutional structure of the relationships between the Fed and these policymakers.” The remainder of the present article seeks to respond to that call by revisiting the assumption that the confirmation of Fed nominees is best understood through the lens of ideological voting. In doing so, I set out to establish the conditions under which extant theories of central bank

9 appointments that hinge on ideological proximity are suﬃcient and to consider additional predictors of support for Fed nominations that may at times dominate purely ideological considerations.

3 Theory

While overlooked in extant theories of central bank appointments, scholars have long recognized a secondary institutional function for central banks in addition to their role as monetary policymakers. Writing before most theories of central bank appointments were written, Kane (1980) identified a secondary role for the Fed as Congress’ scapegoat: “Fed officials are expected to let Congressmen and Senators blame them for whatever financial or economic developments their constituents back home dislike. In exchange for playing economic-policy scapegoat, Fed officials are offered unusually long terms in office and substantial budgetary autonomy.” More recently, Binder and Spindel (2017) demonstrate how pervasive that mechanism has been throughout the history of the Fed, showing how since the Fed’s inception, congressional reforms of the Fed have coincided with economic downturns and and effectively institutionalized Congress’ ability to deflect blame to the Fed. While existing theories of central bank appointments suggest that senators’ support for Fed nominees is driven by ideological proximity alone, I argue here that the Fed’s role as a scapegoat for Congress points towards an additional predictor of support that ought to condition the extent to which ideological proximity factors into senators’ decisions on confirmation. As Cameron, Cover and Segal (1990) describe when theorizing about the confirmation of federal judges, senators must ask themselves prior to a confirmation vote, “Can I use my actions during the confirmation process to gain electoral advantage? Or if I am forced to account for my votes, can they be used against me? What is the most electorally expedient action for me to have taken?’” In the context of judicial confirmations, the authors go on to show that senators confirmation votes often reflect the ideology of their constituents. However, as noted by Epstein et al. (2006) and Binder and Maltzman (2009), that mechanism

10 hinges on the political salience of nominations and judicial policymaking. That is, if senators are expected to be responsive to constituents’ policy preferences, constituents must have well-formed preferences (Epstein et al., 2006; Binder and Maltzman, 2009). Given the complexity of monetary policy and constituents’ resulting lack of well-formed preferences over it, it seems unlikely that constituents would either reward or punish their senators for supporting or opposing a Fed nominee on ideological grounds. That does not, however, necessarily imply that senators have no reason to respond differently when their constituents’ perceptions of and confidence in the Fed varies. Consider first how the thought process described by Cameron, Cover and Segal (1990) plays out for a senator faced with a constituency back home that views the Fed favorably. First, the senator recognizes that their constituents are unlikely to either reward or punish them for supporting a Fed nominee on ideological grounds: while they themselves might favor or dislike the monetary ideology of a nominee, their constituents are unlikely to recognize or understand their own ideological sim- ilarities or differences with a nominee. Thus, voting for confirmation on ideological grounds provides no potential electoral advantage. Second, when constituents express confidence and trust in the Fed, such attitudes limit the senator’s ability to use the Fed as a scapegoat during economic downturns. Taken together, since (a) little opportunity exists to derive an electoral advantage from a low-salience confirmation vote, and (b) high levels of constituent confidence in the Fed make it more difficult to use the Fed as a scapegoat, I expect senators’ votes to be driven primarily by their own ideological proximity to the nominee. Next, consider this same calculation on behalf of a senator whose constituents are skeptical of the Fed and tend to view it unfavorably. As before, I expect that senators do not believe constituents will hold them accountable for their confirmation vote on ideological grounds given voters’ difficulty of understanding nominees’ preferences as well as forming their own. However, when constituents exhibit low levels of confidence in the Fed, a senator’s support for Fed nominees in the confirmation stage may affect his or her ability to shift blame for economic downturns to the Fed. When constituents are skeptical of the Fed, they

11 ought to be more willing to accept senators’ explanations that the Fed is to blame for poor economic performance. However, if senators’ confirmation records reflect having supported individuals appointed to the Fed, constituents may continue to attribute responsibility to a senator for having supported putting those Fed governors in position to make such policy decisions in the first place. On the other hand, voting against confirmation of Fed nominees is one mechanism by which senators can distance themselves from the Fed and retain their ability to deflect responsibility for an economic downturn. Thus, when a senator’s constituents exhibit a lack of confidence in the Fed, they potentially stand to gain electorally by blaming the Fed for economic hardships and pointing to their confirmation votes indicating their lack of support for the Board members making policy decisions. Because few electoral gains are to be had from supporting or voting against confirmation on ideological grounds no matter the nominee or context, a senator’s ideological proximity to a given nominee should not affect his or her vote when constituents exhibit high levels of distrust in the Fed. Taken together, such reasoning implies that the foundational assumption in theories of central bank appointments and Senate confirmations — that support for a nominee is driven entirely by ideological proximity — holds only conditionally. Specifically, as senators’ constituents exhibit declining confidence and trust in the Fed, the importance of ideological proximity for determining confirmation votes should decline. The reason is that as constituents become sufficiently skeptical of the Fed, senators ought to deprioritize ideological considerations in favor of putting themselves in a position to use the Fed as a scapegoat for economic downturns.

4 Data and measurement

– Insert Table 1 About Here –

To examine the foregoing theoretical expectations empirically, I draw on the sample of 15 senate conﬁrmation votes that were taken by roll call between 2009 and 2018. The reason

12 for focusing on that relatively short and recent time period is that most confirmation votes prior to 2009 were either taken as voice votes or nominees were confirmed by unanimous consent. Limiting the empirical analysis to the period in which roll call votes have become the norm mitigates the potential issues associated with non-random and strategic roll call vote selection for the earlier period.5 Table 1 provides basic descriptive information about the sample of confirmation votes to be examined.

4.1 Measuring public opinion

Central to the theoretical argument at hand is the role of state-level voter confidence in the Federal Reserve. Thus, to examine whether senators condition their otherwise ideologically motivated confirmation votes on their constituents’ perceptions of the Fed, I construct state- level estimates of public opinion for each year in the sample. I draw on responses to an annual survey in the Gallup Poll Social Series on economic and financial issues. Specifically, respondents were asked the following: “As I read some names and groups, please tell me how much confidence you have in each to do or to recommend the right thing for the economy: a great deal, a fair amount, only a little, or almost none. How about Federal Reserve Chairman Janet Yellen (Ben Bernanke)?” For each year in the sample, an average of 840 respondents provided answers to the question. To estimate state-level public opinion from Gallup’s nationally representative sample, I employ multilevel regression and post-stratification.6 In the first stage, I estimate a model in which individual survey responses are modeled as a function of individual and state-level predictors. After converting survey responses into a binary variable equalling 0 when the re- 5See Ainsley et al. (2020) for a more extensive discussion of the source of sample biases that emerge from the strategic selection of roll call votes. 6The method increasingly is the norm in state-level public opinion research and has been shown to produce estimates similar to state-level polls and outperform disaggregation even for much larger samples than the one relied on herein (Lax and Phillips, 2009).

13 spondent reports confidence the current Fed chair (either “a great deal” or “a fair amount”) and 1 when the respondent does not have confidence in the Fed chair (responding either “only a little” or “almost none”), I estimate a model with individual-level covariates for respondents’ education and employment status, along with state-level predictors for party affiliation. Formally, the model takes the following form, where the probability that individual i, with indexes for their education-employment combination (e), state (s), and poll (p), expresses a lack of confidence in the Fed is given by:

−1 educ, employ state poll Pr(y = 1) = logit β0 + αe[i] + αs[i] + αp[i] . (1)

Other than the intercept (β0), each term is a modeled eﬀect such that the individual predictors for education and employment group as well as the survey year are given by:

educ, employ 2 αe ∼ N(0, σeduc, employ), for e = 1, ..., 9

poll 2 αp ∼ N(0, σpoll) for p = 1, ..., 10.

Each respondent is indexed by e, placing him or her in one of nine composite categories corresponding to three possible levels of education — high school graduate or less, some college but less than a bachelor’s degree, bachelor’s degree or higher — and three employment statuses — employed, unemployed, or not in labor force. Finally, I model a state-level eﬀect as a function of party aﬃliation in each state in a given year:7

state state dem rep 2 αs ∼ N(β0 + β · Dems[p] + β · Reps[p], σstate), for s = 1, ..., 50.

From that model I extract predicted probabilities of Fed trust for all combinations of the demographic and geographic variables. In total, the method yields nine demographic categories in each of the 50 states for a total of 450 combinations per year. Finally, I poststratify 7All state-level party aﬃliation data are drawn from Gallup polls in Gallup US Daily.

14 with those predicted probabilities according to the state population frequencies recorded by the US Census’s American Community Surveys. The results supply yearly estimates of public confidence in the Fed in each state, as needed to examine the proposed relationship between confirmation voting behavior, public opinion, and ideological proximity.8 For the period under examination, the average measure of state-level distrust in the Fed is 0.47, with values ranging from 0.36 to 0.58, and a standard deviation of 0.06. It is worth emphasizing that that variable and measurement approach are not designed to capture state-level preferences with respect to monetary policy. Good reasons can be found for being skeptical that the general public has well-formed monetary policy preferences that one (or any) survey question reasonably could capture. The theory at hand, however, does not concern itself with the monetary policy preferences of the general public. Instead, the theoretical focus and corresponding measurement approach aim to explore how the public’s confidence (or lack thereof) in the Fed as an institution affects the voting calculus of US Senators. While answers from some highly informed respondents might reflect a personal assessment of the Fed’s policymaking efficacy, the source of confidence or distrust in the Fed is of little consequence for the purposes here.

4.2 Measuring Fed nominee and senator ideology

In addition to the state-level measures of public opinion, an empirical examination of the theory at hand requires comparable estimates of ideology for both nominees to the Fed and senators casting conﬁrmation votes. While an extensive literature measuring the ideology of both central bankers and legislators exists, research placing them on a common and substantively meaningful ideological dimension is scarce. Chang (2003) gets close to the necessary measure with common space estimates for all members of the Federal Open Market Committee (FOMC) and Senate Committee on Banking, Housing, and Urban Aﬀairs from 8All estimates of state-level public opinion and replication data are available from the author upon request.

15 1970 to 1995. To generate those estimates, she draws on FOMC voting records and Senate committee members’ stated positions on monetary policy during the semiannual testimony that accompanies the Fed’s Monetary Policy Report to Congress. I adapt that technique here, first updating the estimates of both central bankers and senators sitting on the Banking, Housing, and Urban Affairs Committee for the period under examination. After hand-coding the 21 transcripts for statements made by senators on the committee concerning whether they agreed with the rate-setting policy of the FOMC (=0) or they preferred tighter (-1) or looser (+1) policy, I follow the coding rule from Chang (2003) that collapses each senator and central banker’s position or vote (respectively) into a binary indicator of whether it reflects a more hawkish (1) or dove-ish (0) policy stance. That becomes the binary dependent variable in the following probit regression model, where individual i’s position at rate-setting meeting period t, rit, is modeled as a function of an individual-level random effect (αi) and a set of monthly economic variables including the previous month’s change in the CPI (Inflt−1) and unemployment (Unempt−1) as well as the current period’s Federal Funds Rate (FFRatet):

∗ Pr(rit = 1) = Φ [αi + β1Inflt−1 + β2Unempt−1 + β3FFRatet] (2)

I will refer to those estimated unit eﬀects (αi), which are depicted in the right panel of Figure 1, as individuals’ monetary ideal points. While that measurement approach has been validated by extant research, the estimates conform with the conventional wisdom and anecdotal evidence about individual preferences at the Fed. For example, looking across the three individuals who have served or are serving as Chair, we would expect what we see here with Janet Yellen being to the left of both Bernanke and Powell, who are comparatively more moderate.

– Insert Figure 1 About Here –

The approach provides estimates of monetary policy ideology for all Fed nominees in

16 the sample, but only 20% of all senators who cast votes on Fed nominations during that period. To place on a common ideological scale the remaining 125 senators who are not on the Banking, Housing, and Urban Affairs committee but do participate in confirmation votes, I assign to senators not on the committee the monetary ideal point (αi) of the senator who is ideologically most similar to them on macroeconomic issues. To identify ideologically similar matches for non-committee senators, I extract from the universe of Senate roll call votes during the period only those identified by the Comparative Agendas Project as falling in the broad category of macroeconomic issues. The sample amounts to 9.4% of all Senate roll call votes, with an average of 57 votes per Senate. With the resulting subset of 399 votes on macroeconomic issues, I estimate a “macroeconomic policy ideal point” for all senators with a standard two-parameter item response model following the expectation maximization methods described in Imai, Lo and Olmsted (2016). Then, with a unique macroeconomic policy ideal point for each Senator, I identify for those senators not on the committee the ideologically most similar senator who does serve on the committee by minimizing the Eu- clidean distance between macroeconomic policy ideal points. On average, senators not on the committee are matched to a colleague that is 0.046 units, or 5% of a standard deviation, away from their own ideal point. Once I have created the matched pairs, I assign to those senators not on the committee the monetary ideal point of their matched senator as estimated by Equation 2.9 The resulting distribution of monetary ideal points for all senators is depicted in the left panel of Figure 1.10 9All estimates of macroeconomic policy ideal points and the replication files to produce them are available from the author upon request. 10Recall that the reason the macroeconomic policy ideal points from Senate roll call vote records are insufficient on there own is that we need Fed nominees and senators placed in a common ideological space. Just as we cannot estimate individual αi’s for the 125 senators not on the banking committee because they do not participate in the committee hearings, nominees to the Fed do not vote on Senate legislation and thus we cannot estimate their

17 5 Empirical analysis

With the foregoing estimates of monetary policy ideology and state-level confidence in the Fed, I now turn to a model of the Senate confirmation vote. Per the theoretical expectations described in the previous section, I model senators’ decision to vote against confirmation as a function of their ideological proximity to the nominee and their constituents’ reported confidence in the Fed for the period prior to the confirmation vote. To control for the fact that senators are more likely to support a president’s nomination when they are co- partisans, I include a binary indicator for whether each senator is in the same party as the nominating president. I also follow the existing empirical literature on appointments and enter control variables for presidential approval ratings as well as binary variables indicating whether the confirmation vote is for the Chair of the FOMC and whether the nominee is being reappointed after already serving a partial term on the FOMC. Taken together, those considerations lead to the estimation of the following model:

Pr(yij = Nay) = β0 + β1SamePartyij + β2IdeologyDistij + β3FedDistrusti[s]j +

β4IdeologyDistij × FedDistrusti[s]j +

β5Chairj + β6Reappointmentj + β7PresApprovalj, (3)

where SamePartyij = 1(0) when senator i is (not) in the same party as the president who appointed nominee j, IdeologyDistij corresponds to the absolute distance between the estimated monetary ideal points of senator i and nominee j, and FedDistrusti[s]j reﬂects the level of distrust in the Fed in senator i’s home state s at the time of the conﬁrmation vote for nominee j.

– Insert Table 2 About Here – ideological positions in that space.

18 The results of the estimated models are presented in Table 2. While the coefficients themselves provide little intuition about the models’ substantive effects, their signs comport with theoretical expectations. For example, being a co-partisan with the nominating president appears across all specifications to have a significantly negative effect on the likelihood of a senator voting against confirmation. Similarly, both senators’ ideological distances from a nominee and their home state’s level of distrust in the Fed correspond with a greater likelihood of voting against confirmation. To provide a more substantively meaningful interpretation of the results, I focus on the predicted probabilities of voting against confirmation and their first differences. The left panel of Figure 2 shows how the predicted probability of a senator voting against a nominee’s confirmation varies with their constituents’ distrust of the Fed. Holding ideological proximity at its median (0.599), the figure highlights both the role of constituent distrust as well as the importance of being in the same party as the president for the probability of supporting confirmation. As one would expect, senators who are co-partisans with the appointing president (blue line) are significantly less likely than those in the opposing party (black line) to vote against confirmation. The significant and positive slope of the predicted probabilities of a vote against confirmation as confidence in the Fed declines suggests that senators are sensitive to how their constituents view the Fed. Interestingly, that occurs regardless of whether they are in the presidents party, although an unmistakably large difference appears between the two as reflected in the distance between the black and blue lines. Similarly, the right panel of Figure 2 holds state-level distrust in the Fed at its median (0.49) and shows the predicted probability of voting against confirmation as the ideological distance between a senator and a nominee increases. As expected both here and in the extant literature, the predicted probability of voting against confirmation increases as the ideological distance between senators and nominees widens. Again, the same is true for both senators in the nominating presidents party (blue) and not (black).

– Insert Figure 2 About Here –

19 Finally, Figure 3 depicts the primary empirical result concerning the interaction between ideological proximity and constituent’s perceptions of the Fed. Consistent with theoretical expectations, the figure demonstrates how the effect of ideological proximity on the probability of voting against confirmation is conditional on the extent to which a senator’s constituents distrust the Fed. Each line plots the difference in the probability of voting against confirmation for a given senator when a nominee is the furthest ideologically from that senator and when a nominee is ideologically most similar to that senator. Thus, a sta- tistically significant, positive first difference indicates that ideological proximity does shape confirmation voting behavior in such a way that senators are more likely to support ideological allies. Critically, however, we observe that positive effect for senators only when their constituents exhibit reasonably high levels of confidence in the Fed, which is reflected in low levels on the x-axis. Regardless of whether a senator is in the nominating president’s party or not, ideological proximity appears to drive confirmation voting behavior when constituents express relatively high levels of confidence in the Fed. That result is consistent with the extant literature on partisan appointments and confirmation that focus exclusively on the role of ideological proximity.

– Insert Figure 3 About Here –

However, when a senator’s constituents express sufficient distrust in the Fed, their own ideological proximity no longer affects the probability with which they vote to confirm a nominee. Specifically, when over half the population views the Fed unfavorably, senators both within and outside the nominating president’s party no longer condition their confirmation votes on ideological proximity.11 As the histogram of observed state-level distrust in the Fed demonstrates, the circumstance is not particularly extreme. In the sample at hand, nearly 11The results can be examined further by looking at second differences, as proposed by Berry, DeMeritt and Esarey (2010) and Rainey (2016), to address the established problems with compression in limited dependent variable models. For senators not in the nominating president’s party, the estimated second difference is -0.487 with a 95% confidence interval of

20 half of the observations (46%) occur in the range where no matter a nominee’s ideology, senators may ﬁnd themselves incentivized to vote against nomination in order to distance themselves from the Fed and use it as a scapegoat during economic downturns.

6 Discussion

Recognizing the importance of the composition of central bank policymaking committees for the conduct of monetary policy and resulting economic outcomes, scholars have devoted substantial attention to understanding the politics of central bank appointments. In the United States, that interest has generated a substantial body of research on the ways in which presidents strategically nominate like-minded individuals to the Fed, emphasizing the role of presidential partisanship (Adolph, 2013), election timing (Havrilesky and Gildea, 1992), and the economic context (Schnakenberg, Turner and Uribe-McGuire, 2017). However, missing from much of this extant research is a critical examination of Senate confirmation and explo- ration of the distinct incentives senators may face in determining their support for presidents’ nominations to the Fed. Is support for nominees in the Senate confirmation process determined uniquely by senators’ ideological alignment with nominees? Or do senators include in their voting calculus concerns beyond monetary ideology, such as the electoral expedience of having aligned themselves with the Fed in casting votes to confirm? Building on extant theories that emphasize the ways in which the Fed can serve as a scapegoat for senators during economic downturns, I argue here that ideological considerations ought to only dictate confirmation votes when constituents’ confidence in the Fed is high. Under this circumstance, constituents’ confidence in the Fed limits senators’ ability to use the Fed as a scapegoat. By contrast, when constituents exhibit low levels of confidence in the Fed, senators may find it in their interest to vote against confirmation regardless of ideological proximity to presidential nominees. In doing so, they stand to distance them- [−0.8, −.1]; for senators in the nominating president’s party, the estimated second difference is -0.132 with a 90% confidence interval of [−0.26, −0.03].

21 selves from the Fed and avoid appearing supportive of the institution and its membership that they may quite effectively use as a whipping boy during economic downturns. While the suggestion that senators consider more than just ideological proximity to nominees when voting on confirmations is hardly a novel argument in the broader literature on Senate confirmations, it has gone overlooked in the context of central bank appointments. As such, it challenges a fundamental assumption in extant theories of Fed appointments that constrain confirmation votes to be determined entirely by ideological proximity. Ours is a critical departure not only because it allows us to better understand confirmation votes themselves, but it also suggests important and novel ways in which the Senate constrains the president in influencing the Fed through appointments. That is, perhaps more important than allowing us to speak to the contentiousness of any given nominee, this more robust conceptualization of the confirmation process can help us understand both observed and unobserved instances in which the Senate’s confirmation prerogative alters the success of the president in filling persistent vacancies. Future research ought to consider these constraints on presidential appointments as they have occurred historically in the failed nominations of Felix Rohatyn, Marvin Goodfriend, Nellie Liang, and others whose names were withdrawn prior to the Senate holding a confirmation vote. While the Senate certainly constrains the president in the appointment of ideologically extreme candidates like we have seen with Judy Shelton, the findings here indicate an additional constraint in which it may be difficult to fill vacancies regardless of the nominees’ preferences. In sum, the theory and empirical results presented here suggest that filling vacancies at the Fed successfully is likely to become increasingly difficult as public confidence in the institution declines. I argue that that is true not because the president and Senate are too ideologically distant to identify a nominee they both support, or because they face in- surmountable information asymmetries about potential nominees’ preferences, but rather because regardless of ideology, senators see little to gain from effectively aligning themselves with the Fed by casting votes to confirm. As noted before, the more frequent regularity and

22 persistence of vacancies at the Fed in recent history threatens the quality of monetary policy decision-making given the general consensus surrounding the benefits of policymaking by committee in that domain (Blinder and Morgan, 2005). Moreover, that reasoning also has an important consequences for the balance of power among voting members of the FOMC, which consists of the seven Governors selected by the president as well as five regional bank presidents serving rotating terms. The FOMC was designed such that the presidentially appointed governors — with their long, 14-year time horizons and mandates to represent the national interest — would always hold the majority of votes on monetary policy decisions. As it potentially becomes more difficult to fill vacancies, however, the narrow two-vote majority may fade and shift the majority of votes into the hands of more regionally focused Reserve Bank presidents. Given the robust finding in the extant literature that Reserve Bank presidents tend to be more conservative than governors in their votes on monetary policy, that consideration could contribute to a strategic shift in the Fed’s conduct of monetary policy. While the results here represent a step forward in our understanding of how the confirmation process affects central bank appointments, considerable opportunities for future research remain. Although the empirical approach taken herein limits the analysis to a relatively recent period owing to data constraints, nothing suggests that the findings are a new phenomenon without historical precedent. Similar to the ways in which research on judicial confirmations traced the evolution of the confirmation process, much stands to be gained from understanding Senate confirmations to the Fed in a historical context and incorporating changes in the political and economic context scholars have identified as affecting appointment strategies (Ainsley, 2017; Schnakenberg, Turner and Uribe-McGuire, 2017). While the relationship between central bank appointments and public opinion necessarily is constrained by a public that is relatively uninformed about the conduct of monetary policy, the evolving role of the Fed during economic recovery and its relationship with economic policymakers in the other branches of government raises new questions about its composition and respon- siveness to both Congress and the public. Furthermore, while the research project at hand

23 set out to respond to Morris’s (2000) largely overlooked call for scholars to “reevaluate past assumptions about the preferences of the Fed and other relevant policymakers,” it focuses on just one novel determinant of senators’ preferences. Moving forward, scholars examining central bank appointments would be well served to continue to interrogate the assumptions concerning the preferences and various considerations of all relevant actors.

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27 Appointing Conﬁrmation Nominee Position Vote president date Ben Bernanke Chair Obama Jan 28, 2010 70 – 30 Michelle Bowman Governor Trump Nov 15, 2018 64 – 34 Governor Trump Sept 12, 2019 60 – 31 Lael Brainard Governor Obama June 12, 2014 61 – 31 Richard Clarida Governor Trump Aug 28, 2018 69 – 26 Stanley Fischer Governor Obama May 21, 2014 68 – 27 Vice Chair Obama June 12, 2014 63 – 24 Jerome Powell Governor Obama May 17, 2012 74 – 21 Governor Obama June 12, 2014 67 – 24 Chair Trump Jan 23, 2018 84 – 13 Randall Quarles Governor Trump Oct 5, 2017 65 – 32 Governor Trump July 17, 2018 66 – 33 Jeremy Stein Governor Obama May 17, 2012 70 – 24 Daniel Tarullo Governor Obama Jan 27, 2009 96 – 1 Janet Yellen Chair Obama Jan 6, 2014 56 – 26

Table 1: Sample of Federal Reserve conﬁrmation votes, 2009-2019

28 (1) (2) (3) (4) (5) (6) Senator-President co-partisans −2.73∗∗ −2.72∗∗ −2.73∗∗ −2.74∗∗ −2.77∗∗ −2.80∗∗ (0.15) (0.15) (0.15) (0.15) (0.16) (0.16) Ideological distance 0.36∗∗ 0.38∗∗ 0.40∗∗ 0.32∗ 2.51∗ (0.12) (0.13) (0.13) (0.13) (1.10) Distrust in Fed 3.23∗∗ 3.54∗∗ 3.96∗∗ 7.22∗∗ (1.14) (1.16) (1.17) (2.01) Conﬁrmation of chair 0.19 0.27 0.28 (0.18) (0.18) (0.18) Reappointment 0.46∗∗ 0.34 0.29 (0.17) (0.17) (0.18) Presidential approval −3.82∗∗ −3.80∗∗ (0.89) (0.89) Ideological distance × −4.45∗ Distrust in Fed (2.22) Constant 0.28∗∗ 0.00 −1.60∗∗ −1.89∗∗ −0.31 −1.92 (0.08) (0.12) (0.58) (0.60) (0.69) (1.06) AIC 1404.01 1397.33 1391.28 1387.87 1369.97 1367.94 # Observations 1489 1489 1489 1489 1489 1489 ∗∗p < 0.01, ∗p < 0.05

Table 2: Results of probit regression models (Equation 3) estimating the probability of a senator voting against conﬁrming a nominee.

29 Figure 1: In the left panel, the distribution of senator’s monetary policy ideal points is depicted, with those on the committee (light grey) overlaid for those senators’ not on the committee (dark grey). In the right panel, the monetary policy ideal points for the Fed appointees (black squares) are plotted alongside those senators who serve on the committee (grey circles), as estimated by Equation 2.

30 Figure 2: Estimates of the predicted probability of voting against confirmation for senators both sharing a party with the appointing president (blue) and in the opposing party of the appointing president (black). Vertical bars reflect 95% confidence intervals and the histograms show (L) the distribution of distrust in the Federal Reserve in Senators’ home states and (R) the distribution of ideological distance between senators and Fed nominees. Results corresponding to Model 6 in Table 2, holding presidential approval at its median and binary variables for the reappointment and confirmation of the chair at 0.

31 Figure 3: Estimates of first differences for the effect of ideological distance on the probability of voting against confirmation for senators both sharing a party with the appointing president (blue) and in the opposing party of the appointing president (black). Vertical bars reflect 95% confidence intervals and the histogram shows the distribution of distrust in the Federal Reserve in Senators’ home states. Results corresponding to Model 6 in Table 2, holding presidential approval at its median and binary variables for the reappointment and confirmation of the chair at 0.