Has the Federal Reserve lurched to the left? That’s the finding by the Manhattan Institute, which traces an “increasingly left-leaning, activist, and demographically diverse” tilt — and less experience, to boot — among directors of the 12 Federal Reserve Banks. Can the ostensibly nonpartisan, independent central bank be brought back to the vital center? The question is ripe with President Trump headed to the White House and the GOP poised to run Congress.

“Moving Left” is how the institute headlines its report. The case is compelling. The reserve banks — “crucial for American policy and financial regulation,” the report reckons — are supposed to be run by boards of directors who “reflect all sectors of the American economy and be nonpolitical.” Not lately, though. The directors in recent years lean “increasingly left ideologically,” the report states, and often come “from consumer & community, and labor groups.”

The upshot, per the report, is that even while the Federal Reserve Banks “have rapidly increased the racial and gender diversity of their directors since 2010,” which is all to the good, the directors “have become less politically diverse.” Feature how the proportion of directors who make political donations “only to right-leaning candidates” fell to 8 percent in 2023 from 24 percent in 2015. Some 34 percent of directors are now “exclusively left-wing donors.”

Plus, too, the institute reports that the Fed directors “are also now less likely to have had the crucial banking experience needed for some of their oversight roles.” The percent of board chairmen and deputy chairmen with “tested banking experience,” the report discovers, fell to 29 percent in 2023 from 44 percent in 2010. Particularly sharp declines in experience among directors started in 2021, the report says. 

Meanwhile, representation among the directors “from consumer & community groups and labor groups has increased,” to 20 percent  “of nonbank directors in 2023” from a little less than 10 percent in 2010. This lack of experience in the nuts and bolts of banking has, in turn, “inhibited the ability of the Federal Reserve Banks to provide strong and dissenting voices on monetary or regulatory policy,” the report contends. 

This lack of pushback at Washington on the central bank’s base is all the more worrisome in light of current monetary trends. The dollar, in terms of its historic basis of value, gold, has plummeted to less than a 2,600th of an ounce  — a far cry from the 20.67th of an ounce the greenback fetched in 1913 when the Fed was formed. The Fed itself, our Alex Pollock has found, is running multi-billion dollar losses and now has real capital of negative $158 billion.

Were this a private institution, the doors could well be closed while the FDIC and bank examiners scrutinized the books to determine what went wrong and who could be held accountable. The Fed, though, places itself above the reach of the legislators who created it, resisting even the idea of an audit by the federal government, to which every other agency is subject. The Fed, too, is resisting the possibility of President Trump cashiering its chairman. 

There would be more merit in defending the central bank’s independence in matters of monetary policy if the Fed had a better track record. Yet America is still trying to recover from the inflation that Chairman  Powell and his board had dismissed as transitory. The Fed’s Zero Interest Rate Policy and Quantitative Easing schemes were unprecedented attempts to manipulate the economy — with negative consequences that are still coming into focus.

Which brings us back to the institute’s report and its call for fixing the selection process for reserve bank directors. “More attention should be given,” the report says, to making sure “directors are not representing only one side of the nation’s partisan divide.” The prerequisite, too, of “tested banking experience” warrants being “more rigidly defined and adhered to.” Ideally, such reforms at the Fed would go hand in hand with moves to restore honest money.