The Political Power of Finance: The Role of the Federal Advisory Council in the Setting of U.S. Monetary Policy

The instrumental dimension of financial political power in influencing central bank monetary policy is given scant attention in international political economy, due to policymakers deeming financial industry preferences for monetary policy to be both homogenous and obvious. The Federal Advisory Council (FAC), a committee enacted to advise the U.S. Federal Reserve on all matters within its purview, is one such body where the financial industry is not expected to exercise its privileged position to lobby for its monetary policy preferences. Using data derived from Freedom of Information Act (FOIA) requests to the Federal Reserve, this paper will evaluate the monetary policy advice the FAC provides to the Federal Reserve, and investigate whether in fact, the heterogeneity of the committee’s membership affects the advice it gives to the Federal Reserve. By operationalising the FAC’s membership policy preferences via data originating in their balance sheets and loan books, juxtaposed with their advice and consequent Federal Reserve monetary policy, we will be able to precisely determine whether the financial industry, represented by the FAC, exercises instrumental power in this type of forum, and if so, the effect this type of power has on U.S. monetary policy.