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 con- fidence 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) nomi- nations. 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 po- sitions 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 confir- mation 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 pub- lic 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 ideolog- ical 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 understand- ing 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 conse- quences 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 implica- tions 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 im- portance 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 re- search 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