With its ability to influence interest rates globally, the Federal Open Market Committee (FOMC) of the US Federal Reserve is arguably one of the most important decision making bodies on the planet. But how does it come to its decisions? In new research which analyses transcripts of FOMC deliberations over nearly 30 years, Joseph Gardner and John T. Woolley find that women speak less than men for nearly their entire tenure on the FOMC. While women are free to speak, they write, they do not participate equally in FOMC deliberations, and this could be influencing policy choices

Gardner, Joe

Woolley, John T.

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10/27/2016In Fed meetings, decision making is free – but not equal.blogs.lse.ac.uk/usappblog/2016/10/27/in-fed-meetings-decision-making-is-free-but-not-equal/With its ability to influence interest rates globally, the Federal Open Market Committee (FOMC) ofthe US Federal Reserve is arguably one of the most important decision making bodies on theplanet. But how does it come to its decisions? In new research which analyses transcripts of FOMCdeliberations over nearly 30 years, Joseph Gardner and John T. Woolley find that women speakless than men for nearly their entire tenure on the FOMC. While women are free to speak, theywrite, they do not participate equally in FOMC deliberations, and this could be influencing policychoices. In the wake of the Great Recession, the Federal Reserve gained new prominence as it kept interestrates low in an effort to prop up an ailing economy. Changes to the Fed’s interest rate are decidedby the Federal Open Market Committee (FOMC), which is made up of Fed Board Governors andReserve Bank Presidents. But how does the FOMC deliberate its decisions, and who has thebiggest influence on how they are made?In new research we assessed FOMC deliberations using two widely mentioned “conditions” forgood deliberation—that people can both freely and equally participate in deliberation.  By our measures FOMCdecision making is quite free in that people express disagreement, question others, and suggest issues that shouldbe addressed.  In contrast, FOMC participation is not equal.  Some aspects of FOMC inequality probably makesense.  For example, more experienced members talk more.  But other aspects of inequality are indefensible.In particular, we found that female members of the FOMC participate markedly less in that body’s policymakingmeetings.  This certainly raises normative concerns—what would justify such a pattern?  It matters for consequentialreasons as well:  Unequal participation may undermine the quality of the Fed’s deliberations.  In addition, a range ofresearch suggests that women differ from men in their policy preferences.  If policy choices differ across gender,and if there are gender-based inequalities in participation, then resulting policy choices might reflect this fact.We think the FOMC should make its decisions in a deliberative fashion.  By this we mean via a reason-basedprocess involving offering justifications for preferences and evaluating arguments.  However, such deliberation maybe undermined by unequal participation.  Inequalities in participation may limit the free expression of a broaderrange of information, perspectives, and arguments.  Such contributions are partly what makes group deliberation abetter way of making decisions and could also reduce the likelihood of groupthink.  In a related way, with eachFOMC District Bank president representing a different geographic district, unequal participation could lead to theunder-representation of some regions’ interests.Experimental research suggests that unequal participation in general, and less participation by women in particular,leads to poorer performance on collective decision making tasks such as puzzle solving and negotiating over limitedresources.  Gender inequality may matter for other reasons.  Women differ from men across a wide range of issueareas, including with respect to ideology, preferences over social welfare and economic policies, and support forredistributive policies.  These differences characterize elites as well as citizens generally.A variety of studies have identified gender-based differences in decision making among business executives.  Forexample, firms with more women in management produce higher rates of return  and issue less debt.  More relevantto the situation on the FOMC are studies showing gender differences in decision making among bankers.  Ofparticular interest is research on the recent financial crisis showing that female bank CEO’s were more risk aversethan males when it came to setting capital holdings.1/4There is indirect evidence for a pattern of gender-based policy differences on the FOMC.  Data prepared by theFederal Reserve Bank of St. Louis show that between 1978-2007, when female members of the FOMC dissented,they always did so in favor “ease,” that is, favoring a policy more likely to stimulate economic growth rather thancontrol inflation.  (However, in the September 21 meeting of this year, two female members dissented in favor oftightening.) This observation about the policy preferences of female FOMC members suggests that inequality, alongwith the small number of female members (only nine served on the FOMC between 1978-2007), may have reducedthe expression of support for more stimulative monetary policy.A consistent comment of FOMC observers is that its members are not equal.  It is commonplace to observe that theChair is more than first among equals.  Top staff also have tremendous influence.  Are such views correct?  Toanswer this, we examined patterns of participation in FOMC meetings.  The FOMC meets every six to eight weeks toset policy concerning interest rates and other policy instruments.  Each meetings’ transcripts are released after afive-year delay.  This delay balances transparency against the need for secrecy.  In our study we analyze theverbatim transcript of every regular meeting from 1978-2007.We calculated participation rates for each FOMC member, 18 persons per meeting assuming no vacancies orabsences.  Our measure of participation is the number of meeting sentences spoken by these participants in eachseparate meeting they attended.  The quantity of talk contributed by each member, controlling for overall meetinglength, is our indicator of equality in deliberation.  We readily acknowledge that people who talk the most are notalways more influential, but they are availing themselves more thoroughly of the opportunity to influence others andat the least they will tend to shape the tone of discussions.What did we find?  Controlling for a variety of factors, our modeling shows that gender is significantly related toparticipation rates.  In fact, we found gender to be one of the stronger drivers of unequal participation in FOMCmeetings.This is easily seen in the time path of men’s versus women’s participation.  The inequality gap is greatest at theoutset of a woman’s term on the FOMC, as shown in Figure 1.  Our estimates show that with time this differencediminishes and is eliminated after four years (or about 32 meetings).  However, four years was just about theaverage total term of service for women during most of this period. This effectively means that during our studyperiod, women spoke less than men for nearly their entire tenure, leaving them with many fewer opportunities toinfluence the body’s deliberations.Figure 1 – Estimated Effect of Time Served as a Member on the Number of Sentences Spoken in FOMCMeetings, Men and Women, 1978-20072/4Notes:  In this simulation, we make the following assumptions about the typical male andfemale FOMC member:  both have PhD’s; neither hold positions as either district bankpresidents or the vice-chair of the Federal Reserve Board; neither are former top FOMC staffmembers; and neither are voting to dissent.  Source:  Verbatim transcripts of FOMCmeetings, 1978-2007.Our research shows that the FOMC deviates from strict participatory equality.  Does this matter?  It does not seemto flow from any established practice of explicit discrimination.  In fact, Committee norms (and practice) seem torequire minimal participation by all members, a feature not found in many deliberative bodies.  But a robust body ofwork suggests lower participation rates by women could be hurting the quality of the FOMC deliberation and it couldbe influencing policy choices.What can be done?  One straightforward possibility is suggested by Karpowitz and Mendelberg, who show thatwomen’s participation rates improve when the number of women in a group is increased.  Given the starkunderrepresentation of women on the FOMC, that is not an unreasonable prescription.  It is also possible thatgender inequality may decline under the leadership of Janet Yellen, the first woman to lead the Fed.  It will be someyears, however, before that proposition can be evaluated.This article is based on the paper, ‘Measuring Deliberative Conditions An Analysis of Participant Freedom andEquality in Federal Open Market Committee Deliberation’ in Political Research Quarterly.Featured image: Meeting of the Federal Open Market Committee at the Eccles Building, Washington, D.C. Credit:Federal Reserve Bank of PhiladelphiaPlease read our comments policy before commenting.  Note:  This article gives the views of the author, and not the position of USApp– American Politics and Policy, nor ofthe London School of Economics.  Shortened URL for this post: http://bit.ly/2eTtRXY3/4______________________About the authorsJoe Gardner – Gonzaga UniversityJoe Gardner is an Assistant Professor of Political Science at Gonzaga University.  His currentresearch is focused on deliberative modes of decision making.  Along with John Woolley he haspublished several articles on the Federal Open Market Committee’s decision making, including arecent article assessing the effect of transparency on reasoned deliberation.John T. Woolley – University of California-Santa BarbaraJohn T. Woolley is Professor of Political Science at the University of California-Santa Barbara andco-director of a large web archive, the American Presidency Project (www.presidency.ucsb.edu). His work on the Federal Reserve and financial regulation extends from his 1984 book MonetaryPolitics (Cambridge) to a recent article on the Dodd-Frank reforms published in Politics andSociety.  Current projects involve analysis of presidential documents and the transcripts of theFederal Open Market Committee.CC BY-NC 3.0 2015 LSE USAPP4/4

In Fed meetings, decision making is free – but not equal.

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