Turmoil at the Federal Reserve Bank of Minneapolis

Federal Reserve Bank president
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis.
MPR Photo/Jeffrey Thompson

The words "war," "fracas" and "mess" probably don't show up too often in the same sentence with "Minneapolis Fed." But that's how the scene at the regional bank is getting played in the blogosphere lately.

After some high level staffers were let go in the past month, critics are charging that the management style of Minneapolis Fed President Narayana Kocherlakota is alienating researchers and lacks vision. A defender says Kocherlakota is simply changing up staff to accommodate his evolving policy views.

Last month, the Fed's director of research was replaced after an unusually short, three-year stint in the position. A high-profile monetary adviser got fired, according to another Fed researcher, Ellen McGrattan. And McGrattan's got troubles of her own. She says the president, Narayana Kocherlakota, doesn't want her counsel.

"I'm a monetary adviser, by the way. The job is to advise the president. He has chosen not to use me in that capacity," she said.

Grow the Future of Public Media

MPR News is supported by Members. Gifts from individuals power everything you find here. Make a gift of any amount today to become a Member!

McGrattan says she's not sure she'll have a job at the Minneapolis Fed after a leave of absence. And she doesn't know what Kocherlakota's vision is.

"It's very hard for me to rationalize what he's doing or what direction he's taking the Fed. There's been no rationale given," she said.

Officials at the Minneapolis Fed declined to comment. So did Patrick Kehoe, the adviser who, McGrattan says, got fired last month.

Two people familiar with the situation said they think the personnel moves stem from what they see as Kocherlakota's increasingly dictatorial management style -- not from philosophical debates with his advisers.

But economist Louis Johnston from the College of St. Benedict/St. John's University is skeptical.

"They have very different visions of economic policy," he said.

Johnston says University of Minnesota economists often have important roles at the regional bank. And many of them follow a school of thought that says the government can't do much to help unemployment. When Narayana Kocherlakota took the reins at the Minneapolis Fed in 2009, he shared that view. He said the unemployment rate was stubbornly high despite all sorts of economic stimulus from the Fed. He reversed his position last year and now maintains the Central Bank should do more to help the job market.

"He has evolved from there. It doesn't look like people in the research department have," Johnston said.

Johnston's not shocked by the changes, including the replacement of the Minneapolis Fed's research director. Johnston says he never thought the appointment represented a good fit. Critics charge it's highly unusual for a Federal Reserve Bank president to dump a personally-chosen research director after just three years.

The one place where Johnston and Kocherlakota's critics agree concerns the future relationship between the regional bank and the U of M's economics department.

Johnston says that a close collaboration has helped create several Nobel economics prize winners. If the Minneapolis Fed is going to split from the U's economics professors philosophically, it's not clear whether that mutually beneficial relaitonship will hold up.