Slightly more dovish FOMC in 2017, for the time being - SocGen

Omair Sharif, Research Analyst at Societe Generale, suggests that the rotation of regional Fed presidents voting in 2017 points to a slightly more dovish lean on the FOMC than in 2016.

Key Quotes

“However, there is considerable uncertainty as to whether or not that dovish lean will be offset by the appointment, and confirmation, of President-elect Trump’s nominees for the Board of Governors, as they are expected to bring a more hawkish tilt to the Committee.”

“Although the FOMC will lean more dovish next year, one unknown is the potential for the addition of up to two hawkish Fed governors. The Fed typically operates with seven governors but has been operating with five for some time, as a Republican Congress refused to consider two nominees from President Obama. President-elect Trump will have the opportunity to fill those two vacant seats, and all indications are that his appointees will lean hawkish, perhaps arguing for faster removal of policy accommodation, as well as a reduction in the size of the Fed’s balance sheet.” 

“The nominee for Treasury Secretary, Steven Mnuchin, recently noted that filling those vacancies will be a priority for the new administration. In addition, news stories cited administration sources who indicated that the new administration will move within the first three months in office to fill the vacant seats. Appointees must be confirmed by the Senate, but with Republicans in charge of the chamber, new Governors are likely to be approved. Thus, perhaps as soon as mid-year, the Fed may have two new hawkish-leaning governors, who could balance out what is likely to be a more dovish Fed in the first half of 2017.”