Bypassing the Fed’s barons as gatekeepers

Still, several former senior Fed officials said, it’s a notable shift in the way it flattens the central bank’s traditional hierarchy.

Former Fed vice-chairman Donald Kohn said he had no direct knowledge of Powell’s changes, but they struck him as positive steps that could help the new chairman as he attempts to shepherd the U.S. economy through an uncertainperiodoflowunemployment, low inflation and still tepid, but quickening economic growth.

“I don’t know that this is about getting alternative perspectives as much as it is about opening the funnel a bit,” Kohn said. “Loosening it up and also getting alternative perspectives and having informal conversations, that’s probably a good idea.”

Powell lacks the academic grounding of PhD economists who have recently led the Fed, such as Ben Bernanke and Janet Yellen. Perhaps inrecognitionofthatpotential weakness, he’s keen to engage staff on topics that grab his attention.

Spur-of-the-moment exchanges between the chair and junior staffers would have been largely unthinkable at the Fed a generation ago. Even in recent years, a request for information wouldoftenresultinacarefully vetted formal presentation that might take weeks to prepare and an hour to deliver.

Powell, who spent a dozen years in banking and private equity, has no patience for that, the two current insiders said. Nor does he want staff toover-investtheirtimeina complex production when all he needs is a substantive and frank discussion with just the right expert — but right now.

To accommodate this, division directors have each designated one or two lieutenants charged with responding to Powell’s requests, either by providing information themselves or by quickly rounding up the right economists to meet with the boss and answer his questions.

With these steps, Powell is taking aim at the last vestiges of the Fed’s ancien régime, a system that once gave enormous influence to the directors of the three key economic research divisions — monetary affairs, research and statistics, and international finance. Even today, though it’sutteredinjestasoftenas in fear, those directors bear a famous nickname: the barons. “That came from the head of personnel, who hated us,” said Edwin Truman, directorofthedivisionofinternational finance from 1977 to 1998, the heyday of the barons. “He invented this term because he had so much difficulty dealing with us.”

“You could argue there was tension between division directors as gatekeepers and division directors as responsible for knowing who’s doing what,” he said.