Monetary Policy and Fed chat, where are we at? - Nomura

Analysts at Nomura explained that the Wall Street Journal and Financial Times reported on Thursday that the Trump administration is considering San Francisco Fed President John Williams to fill the vacant Vice Chair position on the Board of Governors.

Key Quotes:

"In an interview with the FT, Williams said he would “welcome such an opportunity to contribute to the important mission of the Fed”. 

Other nominees reported to be under consideration include Lawrence Lindsey (a former Fed governor), Mohamed El-Erian and Richard Clarida.

While much uncertainty remains about the final nominee, Williams’ nomination to the position last held by Stan Fischer would ensure that an economist with substantial monetary policy experience would maintain the number two spot at the Board. Incoming Chair Powell, a lawyer by training, has less monetary policy experience relative to his predecessors as his role at the Board over the past five years was more focused on regulatory matters.

Note that Clarida is also well respected for his academic research on monetary policy. Williams would likely represent further continuity with the outgoing leadership at the Fed as he has actively participated in policy trajectory discussions over the past five years. In a speech today, Williams reiterated his view of three hikes during 2018 as a good starting point, in line with the FOMC median. Finally, a position as Vice Chair for Williams would allow him to lead the longer-term discussion of alternative monetary policy frameworks, an interest he has maintained for some time. However, much uncertainty remains on who the administration will nominate.

Comments this week from New York Fed President Dudley, Dallas Fed President Kaplan and Cleveland Fed President Mester, the last before the blackout period begins for the 30-31 January FOMC meeting, largely reiterated previous statements. In an interview with the FT, Dudley noted that another interest rate hike in March “is not an unreasonable assumption”, consistent with our and the market’s view, especially in light of the steady stream of strong economic data."