U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) called on Federal Reserve Bank of Minneapolis (Minneapolis Fed) President Neel Kashkari to stop his political lobbying and advocacy efforts because they violate the Fed’s mandate and staff code of conduct.
In January 2020, the Minneapolis Fed launched an official webpage devoted to advocating for an amendment to the Minnesota constitution. Known as the Page Amendment, it would create a new “fundamental right to a quality public education.” Kashkari has used the Minneapolis Fed’s staff and resources to testify at legislative hearings, publish op-eds, conduct research, issue press releases, and host community events to campaign in support of the effort—all of which violate the internal Fed restrictions on political activity.
In a letter to Minneapolis Fed President Kashkari, Ranking Member Toomey wrote:
“For more than two years, you have been improperly using your position as president of the Minneapolis Fed and Minneapolis Fed resources to aggressively lobby Minnesotans to support the Page Amendment, an amendment to the Minnesota constitution that you helped develop and would create a new ‘fundamental right to a quality public education.’ This amendment is highly political, as it wades into an ongoing debate about whether government-run school systems are preferable to parental choice in education. It is also controversial because it could be used by liberals to challenge education spending levels in court and give activist judges grounds for overriding levels set by the state’s legislature, which is elected by and accountable to voters.”
As Ranking Member Toomey noted in the letter, the Minneapolis Fed’s own Code of Conduct explicitly prohibits such political activities in order to preserve the Fed’s independence. The Minneapolis Fed’s pattern of embracing politically-charged social causes far outside the Fed’s statutory mandate highlights the pressing need to reform the regional Fed banks. In his letter, Senator Toomey proposed three reforms for Congress to examine:
· Make the regional Fed banks subject to the Freedom of Information Act (FOIA);
· Subject regional Fed presidents to presidential appointment and Senate confirmation, as Senator Jack Reed (D-RI) has proposed for the New York Fed president; and
· Consolidate the regional Fed banks or eliminate them entirely.
Ranking Member Toomey first opened an investigation into the Minneapolis Fed’s mission creep in May 2021, requesting a briefing and documents pertaining to their recent, intense interest in politically-charged issues. To date, the Minneapolis Fed has refused to provide Congress with any of the requested documents, choosing instead to conceal this information from both lawmakers and the American people.
In May 2021, Wall Street Journal columnist James Freeman reported on Kashkari’s political lobbying efforts. In the piece, former Philadelphia Fed president Charles Plosser criticized the Minneapolis Fed’s actions, saying:
“Fed officials as a general rule avoid making political recommendations based on specific proposals, particularly ones unrelated to its scope of responsibilities. It is one thing to say you think education is important and needs improvement, which I probably said many times, but its another to essentially lobby for a specific proposal or bill . . . a real danger is that such actions can indirectly insert the Fed into the political process, undermining its case for independence.”
On April 5, 2022, the Mercatus Center at George Mason University published a report—Mission Critical or Mission Creep? The Research Function of the Federal Reserve Banks—which investigated whether the regional Fed banks have shifted their research to focus more on “controversial or activist issues.” The paper found that, among other things:
· The regional Fed banks’ research staffs have increasingly engaged in research on activist topics (i.e., inequality, climate, race, and gender);
· More than one-fifth of all regional Fed bank papers were coded as activist in 2021, versus between four and eight percent each year from 2006 through 2013;
· The regional Fed banks that were singled out by the Committee for their mission creep—San Francisco, Boston, Atlanta, and Minneapolis—are among the banks that publish the most on activist topics;
· Increasingly activist research agendas could pose problems if the public comes to view the regional Fed banks’ research as controversial or designed to influence public opinion on politically charged topics;
· Activist research agendas risk politicizing the Fed, which values its reputation as a politically independent, technocratic institution; and
· To avoid politicization, the Board of Governors of the Fed should consider using its general supervisory authority over the regional banks to set guidelines for the general themes of research that the banks pursue and to mandate greater transparency surrounding reporting of research activities.