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Comment: Dissents in the FOMC vote are likely to continue, maybe into 2020

It is some months away, but the next rotation of FOMC voters will occur at the January 28-29, 2020 FOMC meeting. Will the rollover in the voting District Bank Presidents change the balance of doves-moderates-hawks among the votes?

Although I assess the leanings of any given voter along that spectrum, I would also caution that most of these policymakers are not rigidly aligned with that particular policy leaning. There is nuance for each. Every one of them take the Fed’s dual mandate as the framework for monetary policy and set it within the bounds of the available economic data and developments. The degree of emphasis they place on the labor market and price stability can vary, as can the willingness to wait or act. I would certainly say that St. Louis Fed President Bullard and Minneapolis Fed President Kashkari are reliable doves and dissenters if no rate cuts are in the works. The remaining 10 District Bank Presidents are more fluid in their views depending on the available information.

At present, the voting District Bank Presidents are John Williams of New York (permanent vote, moderate), Charles Evans of Chicago (dove), St. Louis’ James Bullard (dove), Boston’s Eric Rosengren (moderate), Esther George of Kansas City (hawk). Williams seems is probably more in line with Chair Jerome Powell’s characterization of the July 31 rate action as a “midcycle adjustment” but won’t write off further decreases. Evans is likely to remain supportive of further rate cuts to ensure that inflation returns sustainably to the Fed’s 2% objective, but not be as anxious for further unwinding of the rate increases of 2018 as is Bullard. Rosengren is taking more of a wait-and-see approach to the necessity of removing accommodation as long as the economic fundamentals are solid. George is more alert to the potential for imbalances down the road and can be expected to oppose further rate cuts unless there are definitive signs of a downturn, not just a reset in growth to a modest pace.

Whether the economic data and developments make the argument for adding back in a bit more of interest rate accommodation or a continued strong labor market and stable prices point to good reason to ride out the upside risks, there is a high probability of at least one dissent at each of the remaining FOMC meetings in 2018.

When 2019 arrives, that probably won’t change. The new voters as of January 28 will be Cleveland’s Loretta Mester (moderate hawk), Philadelphia’s Patrick Harker (moderate), Neel Kashkari of Minneapolis (dove), and Dallas’ Robert Kaplan (moderate). There will be a slight shift in the non-permanent voters from two doves, one moderate, and a hawk in 2019 to one dove, two moderates, and one moderate hawk. It is a more centrist ground of voting Presidents overall, but the presence of Kashkari means that if the state of the economy is not urging the FOMC to provide more accommodation, then at least one continued dissent can be expected.

As a footnote, the FOMC voters consist of all the members of the Board of Governors and five District Bank Presidents with the New York Fed having a permanent vote and of the remaining Districts voting in a set rotation. Where District Bank votes have a system of alternates, the Board does not. If a seat on the Board is vacant, then there is no vote to fill the gap. The FOMC has not had a full complement of 12 voters for some years due to vacancies on the Board – July 31, 2013 to be exact. That shows no sign of changing. It is not unusual for a seat or two to be empty on the Board, sometimes for lengthy periods.

Right now there are two vacancies on the Board. President Trump has yet to officially nominate either Christopher Waller or Judy Shelton to the Board of Governors in spite of having tweeted his intentions to do so. Recent experience has shown that delays in formally putting the names to the Senate and starting the process is a fairly strong indication that these will not come to fruition, or that the names in question will withdraw rather than deal with a lengthy and/or contentious confirmation. Shelton is probably not a viable nomination. Waller, on the other hand, could make it through, although he would face a tough battle in maintaining his independence as a monetary policymaker in the face of Trump’s undisguised desire for a loyalist on the Board of Governors. The renomination of Governor Michelle Bowman for renewal of her term which ends on January 31, 2020 has advanced out of the Senate Banking Committee and is awaiting a vote by the full Senate. Her reconfirmation will probably go through without difficulty. It took a long time to find a candidate to fill the slot reserved for a community banker and Bowman has so far has stuck to the role without controversy.

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