Much of the media attention surrounding President Barack Obama's selection of Janet Yellen as the next chairman of the Federal Reserve has focused on Ms. Yellen's views and the potential changes she could make to Fed policy. While these are extremely important points to consider in light of her nomination, the changing composition of the central bank's board of governors is also an important issue to take into account when predicting the future direction of the Fed.
If Ms. Yellen is confirmed by the Senate, she will replace Ben S. Bernanke as chairman, and her confirmation would leave a vacancy on the board of governors for a vice chairman's position. In addition, two of the board's seven members — Sarah Bloom Raskin and Elizabeth Duke — have resigned, and Jerome Powell's term expires on Jan. 31, leaving a total of four vacancies on the Fed's main governing body.
These vacancies give Mr. Obama an enormous opportunity to influence U.S. monetary policy long after he leaves office in January 2017. The term for a Fed governor lasts 14 years, and governors cannot be removed from office because of their policy views. Federal Reserve governors who serve full 14-year terms cannot be reappointed, but governors who are appointed to complete the remainders of incomplete terms (such as the replacements for Ms. Raskin and Ms. Duke) can be reappointed to full terms.
Meanwhile, the 2014 makeup of the Federal Open Market Committee, which oversees the Fed's monetary policy, including the setting of interest rates, also is in question. The FOMC has 12 members, including the seven Fed governors, the president of the Federal Reserve Bank of New York and four of the other 11 regional Federal Reserve Bank presidents. The latter four members serve one-year terms on a rotating basis.
In addition to the four new governors to be appointed by President Obama, the FOMC's 2014 membership roster will include Federal Reserve Bank of Dallas President Richard Fisher, who is one of the most hawkish Fed regional bank presidents, along with another hawk, Charles Plosser, president of the Federal Reserve Bank of Philadelphia. The FOMC will also have a new dovish member, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis and a potential wild card. Federal Reserve Bank of Cleveland President Sandra Pianalto, who was slated to join the FOMC in 2014, announced she will step down from her role early next year.
In light of the evolving composition of the Fed's board of governors and the FOMC, Ms. Yellen's management style may be the most important factor in future Fed policy. As the main liaison between the Fed and the public, her communication style also will be crucial as the world hangs on her every word. Furthermore, while there was intense focus on Mr. Obama's power to appoint Supreme Court justices during last year's election campaign, it is equally important to recognize the immense impact he has as a result of his power to appoint so many Federal Reserve governors.
Dorothy Weaver is chief executive and co-founder of Collins Capital Investments LLC, and a former chairman of the Federal Reserve Bank of Miami.