For the moment, let’s disregard whether a policymaker can be broadly considered a hawk or a dove on interest rates. Who among the voters is likely to favor a rate cut at the July 30-31 FOMC meeting? And where do the rest of the FOMC participants stand?
Board of Governors:
- Chair Jerome Powell – YES – Powell speaks for the FOMC as a whole, and therefore his public remarks should be read as the FOMC consensus. While as Chair he may have some influence over the votes of others on the FOMC, that doesn’t mean there won’t be dissent. However, even if Powell himself is reluctant to provide the so-called “insurance” rate cut, his vote should reflect the broad views of the Committee.
- Vice Chair Richard Clarida – YES – Clarida has said within the last few weeks, “We will certainly act as appropriate to put in place policies that sustain the economic expansion, and the strong labor market and price stability.”
- Vice Chair for Supervision Randal Quarles – YES – Quarles usually sticks to the topics of regulation and supervision, and monetary policy in the context of financial stability. He tends to be more hawkish on monetary policy, but at the moment could see the necessity to give back a little of the tightening imposed last year.
- Governor Lael Brainard – YES – Brainard’s expertise in international economics and finance argues she will favor a rate cut as she has recently said, “Taking into account the downside risks at a time when inflation is on the soft side would argue for softening the expected path of monetary policy.”
- Michelle Bowman – YES – Bowman has rarely strayed from the topic of community banking in her public remarks so far. Given her expertise and experience, she will probably support slightly lower rates to ensure the expansion continues and financial markets are stable in the face of uncertainties.
District Bank Voters in 2019:
- New York Fed President John Williams – YES – Williams tends to be moderate in his outlook for monetary policy, however, recently he cited uncertainties related to trade and the global economy, and soft inflation expectations as reasons a rate cut could be needed.
- Boston Fed President Eric Rosengren – YES – This ‘yes’ is more of a guess. Rosengren hasn’t commented publicly on monetary policy recently. He was supportive of a pause in rate hikes earlier this year and is probably as aware of the threats to the economic outlook as any other policymaker.
- Chicago Fed President Charles Evans – YES – Evans is one of the most dovish of policymakers and sensitive to signs of too-low inflation and the credibility of the Fed’s 2% inflation objective. He definitely will support a cut this time around.
- St. Louis Fed President James Bullard – YES – Given that Bullard dissented in favor of a rate cut at the June 18-19 meeting and that there has been nothing in economic and/or geopolitical developments in the interim that might change his mind, this ‘yes’ vote is a lock.
- Kansas City Fed President Esther George – MAYBE/NO – George is no stranger to registering a dissent in an FOMC vote. She’s solidly hawkish on interest rates and avoiding financial imbalances by keeping rates too low for too long. She might agree with a single rate cut to provide a little cushion to the economic outlook, but then she might not. I would put a substantial probability that her vote will be against the consensus.
While the 10 people listed above have the vote at the end of the meeting, it is well not to forget that there are seven more around the table who have a say in monetary policy and could impact the outcome.
District Bank Alternates and Nonvoters in 2019:
- Philadelphia Fed President Patrick Harker (voter 2020) – Harker is of the opinion that the baseline growth for the US economy is strong and no rate cut is needed even with uncertainties. However, he is also in line with a pause on further rate hikes.
- Cleveland Fed President Loretta Mester (voter 2020) – Mester holds that a resilient US economy does not presently need a rate cut and counsels patience in assessing the headwinds and risks to growth.
- Richmond Fed President Thomas Barkin (voter 2021) – Barkin recently said that it is “hard to make a case for stepping on the gas”. He isn’t as concerned that present low inflation and inflation expectations are going to persist or that the underlying trend isn’t higher than the headline numbers report.
- Atlanta Fed President Raphael Bostic (voter 2021) – Bostic might also resist cutting rates at the July meeting within the context of the dual mandate. He sees a strong labor market and that for inflation, “the numbers I think are not as bleak as some others might suggest.”
- Minneapolis Fed President Neel Kashkari (voter 2020) – Kashkari would certainly vote for a rate cut if he were a voter in this rotation. In fact, he would prefer a steeper 50 basis point cut than the probable 25 basis points.
- Dallas Fed President Robert Kaplan (voter 2020) – Kaplan is a booster for the Dallas Fed Trimmed Mean inflation measure, and it suggests that inflation is indeed running near the Fed’s objective. Combine that with a strong labor market, Kaplan is attuned to the risks of “a build-up of excesses and imbalances” should the Fed provide stimulus at this stage. He also counsels patience and waiting on clarity before taking action that might add to the Fed’s challenges.
- San Francisco Fed President Mary Daly (voter 2021) – Daly hasn’t spoken about monetary policy in the past few weeks, but given remarks earlier last month, might also join with the voices who prefer waiting a little longer before providing stimulus that might not be necessary.
In sum, the decision by the FOMC to lower the Fed funds rate – presumably by 25 basis point from 2.25%-2.50% to 2.00%-2.25% — will not be a unanimous one among the 17 FOMC participants. It may not even be so among the 10 voters. If it does occur, it will be the first rate cut since December 16, 2008 when the FOMC implemented a target range of 0%-0.25% after 1.00%.
Also, if rates are lowered on July 31, it should not be read as the start of an easing cycle or that more cuts will automatically follow. If the labor market remains strong and if inflation creeps even a tenth or two higher along with at similar rise for inflation expectations, the argument for rolling back the rate hikes of 2018 is going to be harder to make. Lowering rates as necessary to cushion against a possible downturn isn’t the same as adjusting policy in the event of a downturn. No where among policymakers is anyone saying the economy is not performing at least adequately relative to forecasts. Mostly the contention is that there remains some slack in the labor market that is keeping wages and benefits from rising more quickly and/or a few idiosyncratic factors that keeping inflation below target and that these will firm up over time.
There won’t be another look at the FOMC’s collective forecast until the next Summary of Economic Projections (SEP) is released after the September 17-18 meeting. A lot can happen between now and then. If risks to the economy recede then the prospect of another rate cut will as well.
To see a history of FOMC votes and interest rate decisions, please see the Whetstone Analysis Reference Library.
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