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Comment: FOMC Rotation for 2020 brings in three moderate voters and one dove

Unless there is a good reason for the FOMC to convene in the interim, the December 10-11 FOMC meeting is the last at which the current rotation of Fed District Bank Presidents will vote on the monetary policy decision before the next rotation takes is place on January 28, 2020.

The FOMC consists of the 12 District Bank Presidents and 7 Governors on the Federal Reserve Board – which in the meeting minutes get referred to collectively as “participants”. However, actual votes at the end of the FOMC meeting belong to the Governors, the permanent vote by the New York Fed President, and a set rotation among the 11 remaining District Bank Presidents – which the minutes call the “members”. Should a Governor be absent or there is vacancy on the Board – or more than one – then the total number of votes at the meeting can total less than the possible 12. Should a District Bank President be unavailable to vote for any reason, his/her alternate in the rotation votes in his/her place. (See table below)

Most of the time the FOMC consensus is usually broad enough that policymakers’ votes line up in solid agreement. However, voters can – and do – register a dissenting vote when he/she has objections to the final decision.  Some are more inclined to do this than others. A dissent on the part of a Governor is relatively rare. Some District Bank Presidents go through their entire tenure without dissenting. A few at the ends of the dove-hawk spectrum have more of a history of civil disagreement with their colleagues.

See the Whetstone Analysis Reference Library for a history of rate decisions and votes, including discussion of dissents.

In any case, with slower growth in 2019 and three “insurance” rate cuts there has been an emergence of more dissent among District Bank voters on both sides of the divide. St. Louis Fed’s James Bullard has been consistently more in favor of faster and larger rate cuts at the early signs of an economic slowdown, while Boston’s Eric Rosengren and Kansas City’s Esther George have wanted rates to remain on hold while assessing risks to the outlook and to avoid future financial imbalances. Chicago’s Charles Evans who traditionally has sided with the more dovish side and providing accommodation to stimulate the economy, was actually in line with the moderates much of the time rate cuts were being announced. Broadly the 2019 FOMC voters have been a group of wary centrists who tried to avoid overreacting and setting policy for the medium term while avoiding the political fray.

Voters in 2020 will also duck any political questions lobbed their way. As a bloc, the next rotation is solidly moderate with the exception of Minneapolis’ Neel Kashkari. He has been a vocal supporter of rate cuts, although like Bullard he has more recently dialed down some of that rhetoric. Cleveland’s Loretta Mester, Philadelphia’s Patrick Harker, and Dallas’ Robert Kaplan have generally been among those who were cautious about cutting rates. Had they been voters in the prior year, they may well have tipped the balance to no or fewer cuts in interest rates.

As such, the pause after three rate cuts that was signaled on October 30 and likely to be reiterated on December 11 should see continued support among FOMC voters into 2020 if the FOMC’s collective forecast remains on track for modest expansion, a strong labor market, and inflation measures inching back toward the Fed’s 2% objective.

I would also look for the names of the voters to not change in 2020. Some of the District Bank Presidents will be nearing retirement age of 65 as of the end of their terms on February 28, 2021. It’s been common for a retiring President to announce his/her intentions some months before actually stepping down to ensure the District’s search committee has plenty of time to find a successor. It is probable that Boston’s Eric Rosengren – the most senior among the service Presidents — will announce his retirement in the not too distant future. Dallas’ Robert Kaplan will be nearing 65 at the end of the term, but he was also appointed after age 55, so if the Dallas Board wants him to stay, they can reappoint him. (See New York Fed’s FAQs about District Bank President selection.) It is not unusual for a District Bank President to serve out the maximum allowable time in office, so a lengthy tenure isn’t the best predictor of when he/she might want to move on.

However, even if there is massive turnover among the District Bank Presidencies, it probably would not much change the outlook for monetary policy. New Presidents are chosen by the District’s Class B and C Directors – essentially those who are not directly involved in banking. It is highly unusual for these Directors to select someone who is not a match for the District’s culture and history. The drive to find candidates from more diverse backgrounds hasn’t changed that there is a strong tendency to select those who align with the Bank’s traditional views on monetary policy.

As a footnote, there are still two vacant seats on the Board of Governors. President Trump’s intention to nominate Christopher Waller and Judy Shelton has so far not advanced beyond a tweet. At this point, if it is to happen, it will wait until 2020. There’s little point since a new Congressional session means the nominations would have to be resubmitted. Governor Michelle Bowman was renominated and reconfirmed to her seat on the Board through January 31, 2034. The hard-to-fill spot for a community banker seems secure for now. Richard Clarida’s position as Governor and Vice Chair may be dependent on the outcome of the 2020 Presidential election. His term as Governor expires on January 31, 2022. Unless he is renominated, accepts, and is reconfirmed prior to the election, he may not have long to continue as a Governor. If he is not a Governor, then he cannot be Vice Chair. If he does get a new term, or if no one else is nominated to fill the vacancy, then his seat as Vice Chair is secure through mid-September 2022.



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