The Federal Reserve’s board of governors, explained — who’s on it and what they do

Every governing body has a leader — and for the Federal Reserve, that’s where the board of governors comes in.

The board of governors, located in Washington, D.C., is one of three key pillars making up the broader U.S. central banking system, along with the 12 regional reserve bank presidents and the Federal Open Market Committee (FOMC). But unlike those other officials, the Fed’s governors have a permanent voting position on whether to raise, lower or maintain the benchmark interest rate that ultimately filters through to products in your financial portfolio, from auto loan rates to savings accounts. They also play a prominent supervisory role with other financial institutions and have more direct influence over drafting and adjusting bank regulations.

Here’s everything you need to know about this powerful group of central bankers.

What is the Fed’s board of governors?

The Fed’s board of governors refers to the seven officials, or governors, who are responsible for overseeing the 12 reserve banks and the broader Fed system, as well as supervising, regulating and directing financial institutions that make up the broader U.S. economic landscape.

Those members work out of the Marriner S. Eccles Building in Washington, the same location where the FOMC meets for its regular rate-setting meetings.

The board employs a research staff of about 1,850 other economists, analysts and experts, whose job is to research major economic theories and questions that can ultimately end up informing officials’ policy decisions, according to the New York Fed.

To understand how the Fed’s board fits into the broader Fed system, think about the three branches of the federal government: the legislative branch creates laws, the executive branch carries those laws out and the judicial branch interprets them.

The rate-setting FOMC more closely resembles the legislative branch, crafting monetary policy as the key orchestrators of the U.S. economy, deciding whether it needs to speed up to get through a bump in the road (a recession) or slow down so as to not crash (overheating). But in this scenario, the Fed’s board would be more like the executive branch, guiding those policies to action and enforcing them among depository institutions and the 12 reserve banks. Governors are also often some of the most well-known Fed officials, with Fed Chairman Jerome Powell (who is also a governor), seen as its chief.

Who’s on the Fed’s board of governors?

Currently, just five governors are on the Fed’s board, with two seats vacant:

• Jerome Powell, chairman
• Richard Clarida, vice chairman
• Randal Quarles, vice chairman for supervision
• Michelle Bowman, governor
• Lael Brainard, governor

All officials but Brainard were appointed by President Donald Trump.

For the two open seats, Trump’s tapped St. Louis Fed Director of Research Christopher Waller and Judy Shelton, one of his economic advisers during his 2016 presidential bid, in nominations for the two empty posts back in 2019, but they’ve yet to be officially confirmed.

What do the Fed’s board of governors do?

Each of the five (normally seven) governors has a different role within the U.S. central bank’s board. Powell, as the Fed’s chair, is responsible for guiding the broader FOMC to a consensus and then representing that body later on in public appearances and press conferences. He also reports to Congress during required-by-law testimonies held twice a year. Meanwhile, Vice Chair for Supervision Quarles is fulfilling a position that came to fruition under the Dodd-Frank Act of 2010, seen as the key overseer of the Fed’s regulatory role who develops policy recommendations regarding how the nation’s financial institutions should be supervised.

The board is also supposed to be diverse, with a member referencing a different Fed district. According to the Federal Reserve Act, they’re supposed to fairly represent U.S. financial, agriculture, industrial and commercial interests. They’re also expected to act nonpartisan and base their arguments on objective economic data.

Congress also mandated that at least one governor have experience in community banking, a position that Bowman is currently occupying.

Who appoints them?

Members of the board must first be nominated by the president, questioned and approved by the Senate Banking Committee and then confirmed by the broader U.S. Senate before coming to the Fed.

The Fed’s board reports directly to the federal government, from which the U.S. central bank derives its direct authority. As is the same for the rest of the Fed, officials operate independent from government, but they’re not independent of government.

How long do they serve on the board?

How long a governor serves in his or her position is complicated, but that’s not without reason.

Governors are appointed for 14-year terms, which are staggered and expire on Jan. 31 of every year that ends in an even number. That’s supposed to insulate the Fed from political influence, safeguarding against a president single-handedly “stacking the board” with his preferences, according to the St. Louis Fed.

Once a governor has fulfilled a term for 14 years, he or she cannot be reappointed. But if they’re fulfilling an unexpired term, as is the case for Brainard and Clarida, they can be reappointed for another 14 years, opening up the possibility that those officials stay on the Fed for longer.

The chair and two vice chairs, however, must be reappointed and confirmed every four years. But even if those officials aren’t confirmed, they could technically still choose to stay for the rest of their tenure as a governor. If Chair Powell, for example, isn’t reappointed when his term as chair expires in February 2022, he could technically choose to stay on the Fed’s board of governors until January 2028.

What authority do they have over other Fed officials?

Mainly, the Fed’s board of governors has a bigger influence than the 12 reserve bank presidents because those officials have a permanent vote on rate decisions, rather than following a three-year rotating schedule (though the New York Fed also has a permanent vote). When the Fed’s governors are fully staffed, they make up the majority of votes (7 of 12) on the FOMC.

Aside from interest rate decisions, the board has the authority to determine a key interest rate on a short-term loan for firms in a cash crunch known as the discount rate, as well as banks’ reserve requirements, which is currently set at 0 percent given the coronavirus crisis.

The Fed’s coronavirus pandemic response highlights what might be the most powerful role of all for the Fed’s board — at least in a time of economic crisis. Under section 13(3) of the Federal Reserve Act, the Fed can create special vehicles that it then pours money into for the purpose of buying debt, helping to prop up financial markets and keep credit flowing in the broader economy. The Fed has so far created 13 different programs since the start of the COVID-19 crisis, all of which have required five affirmative votes among Fed board members to establish, rather than a majority FOMC approval.

What other responsibilities does the board have?

Most of the board’s other responsibilities have to do with its role as an overseer of both financial institutions and the 12 reserve banks.

Those jobs look like:

• Approving the annual budgets and expenditures of reserve banks, which includes how much each reserve bank president is paid;
• Approving who is chosen as a reserve bank president and appointing three of the nine directors of each reserve bank (which are part of a committee that selects the nominee for each regional bank’s president);
• Evaluating and examining financial institutions for their financial soundness, which includes administering stress tests and enforcement actions;
• Publishing broader macroeconomic indicators, such as information on industrial production.

Bottom line

The board might as well be considered the core of the Fed system, responsible for making sure all of its moving parts are functioning smoothly and orderly — and that the country as a whole is being steered toward the Fed’s broader goals of stable prices, maximum employment and financial stability.

“The Board of Governors, led by the Fed chair, is responsible for running the institution that is the Federal Reserve and all that is under its purview – monetary policy, regulatory matters, and the overall health of the banking system,” says Greg McBride, CFA, Bankrate chief financial analyst.

Learn more:

• The budget deficit, explained — and how to prepare for a rising tax burden down the road
• What is economic stimulus and how does it work?
• Negative interest rates, explained — and how they work