The U.S. Treasury Secretary, Scott Bessent, announced on Wednesday (December 3rd) that a new regulation will be promoted, requiring all 12 Federal Reserve Bank (FED) presidents across the United States to have resided in their respective districts for at least three years before being appointed. The reason behind this decision is that many current regional Fed presidents are “not locals,” which deviates from the original design of the Federal Reserve system.
Bessent, speaking at The New York Times’ DealBook Summit, pointed out that the Federal Reserve System was originally structured with “seven governors in Washington D.C.” and “12 regional Fed presidents” to jointly make decisions. The purpose was for monetary policy to reflect the economic conditions of different regions nationwide, rather than being dominated solely by political appointments from the capital. However, many current presidents did not reside in their districts for an extended period before taking office, leading to a “disconnect” from the system’s spirit.
He described the current practice as akin to “bringing in dazzling outsiders” instead of appointing leaders who have deep roots in the local communities, which may result in some presidents not truly representing the interests of their districts. Bessent emphasized that he will propose the Federal Reserve Board to veto any candidates who do not meet the “three-year residency” requirement, and the plan will be implemented starting from future appointments, without retroactive effect.
According to the Federal Reserve Act, regional Fed presidents are appointed by their local boards but still need approval from the Federal Reserve Board in Washington D.C. The law does not specify residency requirements, so regional Feds typically employ a “nationwide recruitment” approach, emphasizing professional capabilities and qualifications.
Currently, several regional presidents were appointed through cross-district recruitment. For example, the current presidents of the Cleveland Fed and the Dallas Fed both come from New York; John Williams, president of the New York Fed, was transferred from the San Francisco Fed; Albert Musalem, president of the St. Louis Fed, previously worked at the New York Fed; and Neel Kashkari, president of the Minneapolis Fed, even ran for governor of California.
The Federal Reserve system has long been criticized for “opaque appointment procedures” and “low public participation,” but regional Feds argue that broad recruitment ensures the selection of the most qualified leaders.
Bessent is currently responsible for selecting the next Federal Reserve chairman for President Donald Trump, to succeed the incumbent Jerome Powell whose term is ending soon. The Trump administration advocates for faster and more substantial rate cuts, criticizing the Fed’s tight rate policy as “damaging the U.S. economy.”
However, most regional Fed presidents remain cautious or even opposed to rate cuts due to persistently high inflation. This raises uncertainty over whether the Federal Open Market Committee (FOMC) will cut rates next week. The current federal funds rate target range is 3.75%–4%, with market expectations leaning towards a 25 basis points cut this month.
Regional bank presidents on the FOMC have five rotating voting rights, and their reserved stance on rate cuts has become the primary obstacle to the Trump administration’s push for loose monetary policies.
Against this backdrop, the personnel arrangement of regional Fed presidents has become a crucial battleground in influencing Fed decisions for the Trump administration. These positions require renomination every five years, with almost all incumbents being reappointed in the past; now, with intensified monetary policy and political maneuvering, the future personnel decisions are drawing significant attention from both the market and academia.
(This article referenced reporting from Reuters)