Holding the Federal Reserve to Account

American Experiment spurs stiffer restrictions against the Federal Reserve’s lobbying

Last December the Federal Reserve in Washington, D.C. quietly updated the Code of Conduct on reserve bank employees across the country. This update clarifies that an employee may not use or even create the appearance of using their position or bank resources to influence anything on a ballot, including a referendum or state constitutional amendment.

While the update applies to every regional bank, the change was precipitated by a letter from American Experiment which asked the Federal Reserve Board and the directors of the Minneapolis Fed to take immediate action to stop Minneapolis Fed President Neel Kashkari from lobbying for changes to Minnesota’s constitution.

Beginning in fall 2019, Kashkari began using his position and bank resources to launch a grass roots lobbying campaign to amend the education clause of the Minnesota constitution. The amendment aims to strengthen the constitution’s education guarantees to close the state’s persistent achievement gap that exists for children of color and with low incomes and is often referred to as the Page Amendment due to retired Minnesota Supreme Court Justice Alan Page’s strong partnership in promoting it.

The Page-Kashkari Amendment provoked opposition from an unlikely pair — Education Minnesota and American Experiment.

However, American Experiment also stepped back and asked: Where did the Minneapolis Fed get the idea they could lobby to change the state’s constitution in the first place?

In America, states are generally supposed to be independent from the federal government except where the Constitution specifically says otherwise. That’s federalism.

With this basic governing framework in mind, it may seem obvious that the resources of a federal reserve bank — a federal entity created by Congress to help set the nation’s monetary policy — should not be used to influence changes in state law and policy.

Yet, Kashkari was openly using his position and the resources of a federal reserve bank to lobby state lawmakers to put the Page-Kashkari Amendment on the ballot. Kashkari and the bank’s staff promoted the amendment by conducting research, publishing op-eds, hosting community events, and testifying at the state legislature.

This wasn’t the only improper political activity Kashkari pursued. U.S. Senate Banking Committee Ranking Member Pat Toomey opened an investigation into the Minneapolis Fed’s “mission creep” in May 2021, raising serious concerns with Kashkari over the bank’s engagement with politically and emotionally charged topics through their Racism and the Economy series. This investigation also singled out the San Francisco, Boston, and Atlanta Fed banks for holding events and publishing research on politically-charged environmental, social and governance (ESG) topics like climate change and racial justice.

Notably, the Federal Reserve’s updated Code of Conduct does not address these other highly political activities. Nor does it impose a blanket prohibition against using bank resources to lobby for changes in state law. Instead, the update seems to be clearly targeted at Kashkari’s use of bank resources to ultimately influence the outcome of an election in Minnesota.

Thus, the updated Code of Conduct should be viewed as a very positive first step to begin reigning in the Fed Banks. The action is directly responsive to American Experiment’s request for “immediate action to require the bank to cease and desist any activities related to the Page-Kashkari amendment.” However, more must be done to reverse the mission creep Sen. Toomey exposed.

American Experiment is now partnering with the Upper Midwest Law Center to make the Federal Reserve Banks more transparent and accountable to the public. Specifically, we sent a letter to the Minneapolis Fed asking them to disclose certain information under the Freedom of Information Act (FOIA).

Remarkably, Kashkari and the Minneapolis Fed refused to provide Congress with any of the documents that Sen. Toomey requested in May 2021. Moreover, the banks have claimed they are not subject to the FOIA because they are not a federal agency. Thus, they are conveniently exempt from any public inquiry and oversight.

Our FOIA request outlines a strong case for why the banks are a federal agency for the purposes of the FOIA. We asked the Minneapolis Fed to comply with the request and “lead the nation’s Reserve Banks toward a new era of transparency.”

The efforts from some regional Fed Banks to pursue a highly politicized social agenda has severely undermined their credibility and given the public ample reason to question whether they can still be trusted with the nation’s monetary policy.

To regain trust, the Fed Banks need to finally come into compliance with the basic level of public oversight that the FOIA requires of every other federal agency.