Guide to FOMC members: Hawks vs doves in 2017 - Westpac

Sean Callow, Research Analyst at Westpac, suggests that there has been a changing of the guard at the FOMC over the past year, with 3 new regional Fed presidents set to vote for the first time in 2017.

Key Quotes

“Washington DC-based Fed governors will also draw more interest than usual, with the Trump administration set to leave its mark in 2017.”

“The Board of Governors has historically been very unified, rarely dissenting over policy whereas it is common for Fed presidents (almost always hawks) to dissent. A 2014 St. Louis Fed study counted only 4 dissents by governors out of the 76 dissents from 1994 to 2013. However, some new faces among the governors in 2017 could cause sharper divisions.”

“Washington DC-based Board of Governors (always voters on FOMC):

Janet Yellen, Chair. Term as chair ends 3 February 2018. While President-elect Trump said in September that Yellen should be “ashamed” of what she’s doing to the US economy, she now seems very likely to serve out her term before being replaced by a hawk.

Stanley Fischer, Vice Chairman of Board of Governors. Perhaps slightly more hawkish than Yellen but a team player.

Jerome Powell: Recently argued against relying too heavily on “Taylor rule variations” (John Taylor is one of the names suggested as Trump’s choice of successor to Yellen). 

Lael Brainard. Brainard's experience in international finance and economics as a former Treasury official have informed her rather rare macro policy speeches in which she cites international factors in erring on the side of caution when raising interest rates. Brainard was an adviser to President Bill Clinton and had been suggested as Treasury secretary if Hillary Clinton had won the presidency.

Daniel Tarullo. Mostly focused on financial regulation, Tarullo said in July 2016 that he wants "more convincing" evidence that inflation is moving towards 2%. Press reports suggest that a Fed vice chair formally in charge of bank supervision is likely to be appointed in 2017, either sidelining or replacing Tarullo.  

Vacant. The Senate did not arrange hearings to confirm President Obama's nomination in January 2015.

Vacant. The Senate did not arrange hearings to confirm President Obama's nomination in July 2015.

(Given the need for Senate confirmation, extended periods of vacancies on the Board of Governors are not unusual. However, the political standoff over Obama's nominations should end sometime in 2017, with Republicans then in both Senate and White House. All indications are that two hawks will be chosen.)

New York Fed president (always votes): Bill Dudley (Vice Chairman of FOMC). Very much in line with Board of Governors, especially Yellen.”

“Voting regional presidents in 2017:

There are three Fed presidents due to vote for the first time in 2017, so their labels are fairly loose.

CENTRIST/HAWKS: Dallas Fed president Robert Kaplan seems less hawkish than his predecessor Richard Fisher but in recent months has sounded increasingly impatient to raise rates. Last month, he said he would have backed a rate hike in September or November and this month, Kaplan suggested there is "probably less" slack in the job market "than some people think."

Philadelphia Fed president Patrick Harker looks to be tending slightly hawkish, though not to the degree of his predecessor Charles Plosser. Last month he said he was supportive of a rate rise in September, November and "definitely" in December. Harker warned that "When inflation starts to rise, it tends to rise quickly."

CENTRIST: Former Treasury official and PIMCO MD Neel Kashkari replaced Narayana Kocherlakota (who had been the most dovish FOMC member) as Minneapolis Fed president in Jan 2016. The Minneapolis Fed historically leans hawkish but Kashkari said last month that the Fed should be willing to tolerate 2.5% inflation. He spends a lot of time on addressing the “too big to fail” problem for US banks. A keen Twitter user.

DOVE: Chicago's Charles Evans. Evans has been a consistent dove, including dissenting. But this month, he said that the growth outlook was positive and that the Fed was getting closer to its 2% inflation target. Indeed in November, he suggested a funds rate of 1.0-1.25% by end-2017.”

“Voters at 2018 FOMC meetings:

HAWK: Jeffrey Lacker, Richmond. He was true to his hawkish stripes in his 2015 voting rotation, dissenting in favour of a 25bp rate rise twice. In November 2016, Lacker said that if the incoming Trump administration pursues looser fiscal policy, that is likely to warrant higher policy rates.

HAWK/CENTRIST: Cleveland Fed president Loretta Mester. In her first FOMC voting rotation, Mester has leant somewhat hawkish in public commentary and dissented in favour of a rate hike in September and November. However, she did not join George in dissents earlier in the year. Mester’s 3% projection for the long term funds rate is a popular choice at the FOMC.

CENTRIST: John Williams, San Francisco. Originally somewhat dovish but since early 2013 has been right in line with the majority. Any attempt to label him a dove is outdated and misleading. Soon after the election, he said gradual rate rises still make sense. Williams' academic work suggests that the long term federal funds rate will be lower than previously projected.

??? Atlanta. President Dennis Lockhart announced that he will retire end-Feb 2017. He has been reliably centrist.”

“Non-voters in 2017 and 2018:

HAWK: Kansas City Fed president Esther George. George lived up to her hawkish reputation in the 2016 rotation, dissenting solo in favour of a rate rise at the March, April and July FOMC meetings, then again - with some company - in September and November. The looming Brexit vote may have stayed her hand in June.

CENTRIST/REBEL: St. Louis Fed's James Bullard. Often draws headlines with unusual proposals and changes of outlook. As of early 2016 he was leaning hawkish. But by the June FOMC meeting, Bullard refused to contribute a long term forecast to the "dot plot" and admitted that the 0.63% dots for 2017 and 2018 were his (a 0.63% dot appeared for 2019 at the Sep FOMC meeting). Bullard's outlook of just one hike by 2019 is easily the most dovish at the FOMC (next-lowest is 2.13%) but given his history of policy swings (open-mindedness!), we will not place him with the traditional doves yet.

CENTRIST/DOVE: Boston Fed president Eric Rosengren. In his 2013 voting rotation, Rosengren maintained the dovish tradition of the Boston Fed, but in 2016 he has been mostly right in line with the consensus view. Indeed he even made a rare appearance on the hawkish side in September. Ahead of the meeting he said the US economy is possibly “a little bit beyond full employment” and then joined George and Mester in dissenting in favour of a rate hike. He did not join them in a dissent in November however.”