Guide to FOMC members: Hawks vs doves in 2018 - Westpac

Sean Callow, Research Analyst at Westpac, suggests that beyond the much-discussed nomination of Jay Powell as Fed chair, there has been a lot of turnover at the FOMC this year and more to come in 2018.

Key Quotes

“This note lists the current Federal Reserve officials who either currently vote at the FOMC or will do so in coming years. We focus heavily on the regional Fed presidents (all of whom except New York rotate), since they consistently produce the widest divergence in policy views and thus create most confusion in markets over the Fed's likely policy path. 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.”

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

• Janet Yellen, Chair. Term as chair ends 3 February 2018. Eligible for reappointment but while President Trump praised her performance, he said he wanted to make his own mark by choosing someone else. It would be surprising if Yellen chose to remain a governor under Powell though she is entitled to do so until 2024.
• Vice Chair: Vacant. Stanley Fischer's early retirment for personal reasons leaves another key role for President Trump to fill. Asked about a leadership combination of Powell and hawkish academic John Taylor, Trump said it was possible.
• Jerome "Jay" Powell: Relatively low profile on the Board of Governors since joining in 2012 but nominated by President Trump to deliver policy continuity. Unusually for the Fed's top job, he does not have an economics degree, with a pre-Fed background in law and investment banking. Senate nomination hearings are likely in January 2018, with a comfortable confirmation vote expected. 
• 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 often cites international factors in erring on the side of caution when raising interest rates. Consistently dovish but has not yet felt compelled to formally dissent. 
• Randal Quarles. Sworn in on 6 November 2017 to Board of Governors and as Vice Chair for Supervision.”
• (Given the need for Senate confirmation, extended periods of vacancies on the Board of Governors are not unusual. Delays in recent years have been attributed to a Republican-controlled Senate rejecting President Obama's nominations, so it is not clear why the lack of urgency by President Trump to nominate governors who should be confirmed with relative ease).
• New York Fed president (always votes): Bill Dudley (Vice Chairman of FOMC). Very much in line with Board of Governors, especially Yellen. Says he will retire from the Fed in mid-2018. Newswires suggest Simon Potter, head of the NY Fed Markets Group as a likely replacement, to be chosen by Board of Directors, not the White House.”

“Voting regional presidents in 2017:

• CENTRIST/HAWKS: Dallas Fed president Robert Kaplan is proving notably less hawkish than his predecessor Richard Fisher. While he voted with the majority to raise rates twice in 2017 and should do so again next month, he has made a number of references to downward pressure on inflation from structural factors such as technology and globalization.
• Philadelphia Fed president Patrick Harker is also less hawkish than his predecessor, Charles Plosser. But overall he still seems to lean a little hawkish, stressing how tight the labour market is and saying that he expects 3 rate hikes in 2018 after 3 this year.
• DOVES: 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. Kashkari has become increasingly entrenched as one of the real doves on the FOMC, including dissenting against both the March and June 2017 rate rises.
• Chicago's Charles Evans. Evans has been a consistent dove over the years, including dissenting. While he has noted the strength of the jobs market and did not dissent against the March and June 2017 hikes, last month Evans said he was worried about falling inflation expectations and said he would like the FOMC to consider pausing on further rate rises until actual inflation reaches 2%.”

“Voters at 2018 FOMC meetings:

• HAWK: Cleveland Fed president Loretta Mester. Tends to lean to tighter policy and declared last month that her interest rate forecast is "probably a little stronger than the median path." But not quite as hawkish as some - she did not join George in hawkish dissents in mid-2016.
• CENTRIST: John Williams, San Francisco. Originally somewhat dovish but since early 2013 has been right in line with the majority. He is conscious of the strength of the labour market, perhaps especially given the booming tech sector in his district. Williams has been supportive of the 2017 rate hikes (including support for a Dec move) and suggests 3 more hikes in 2018.
• Raphael Bostic replaced centrist Dennis Lockhart at the Atlanta Fed in June. In October he said the FOMC's base case for 3 rate rises in 2017 was intact, but as for 2018, was less committed than some others, saying there could be 2, 3 or 4 hikes.
• ?? The Richmond Fed has not yet appointed a permanent replacement for Jeffrey Lacker who resigned in April 2017, admitting he discussed confidential information with a research firm. The interim president is Mark Mullinix, formerly an official with the San Francisco Fed and Kansas City Fed and a Marine Corps commander.”

“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 in favour of higher rates 5 times, 3 of these solo. In Oct 2017 she said holding rates steady until inflation reached 2% (see Charles Evans) "carries risks of overheating the economy, fostering financial instability, and perhaps putting in motion an undesirable increase in inflation."
• CENTRIST: Boston Fed president Eric Rosengren. In his 2013 voting rotation, Rosengren maintained the dovish tradition of the Boston Fed, but in 2016 he moved to the centre and even leaned slightly hawkish, dissenting in favour of a Sep 2016 rate hike. This year he has remained supportive of further tightening, saying in Oct 2017 that the Fed might need to raise rates "every quarter" given unemployment heading below 4% and temporary factors weighing on inflation.
• DOVE/REBEL: St. Louis Fed's James Bullard. Often draws headlines with unusual proposals and changes of outlook. Since the June 2016 FOMC meeting, Bullard has refused to contribute a long term forecast to the "dot plot" and as recently as Oct 2017 said that given slow growth and persistently below-target inflation, it was not clear that any more rate hikes were needed (in the Sep 2017 anonymous "dots", there is one at 1.125% for 2020). But given his history of policy swings (open-mindedness!), we will not place him quite with the traditional doves yet.”