Sunday, December 26, 2010

The New Voting Members of the FOMC

The Federal Open Market Committee comprises the Fed’s seven-member board of governors, including Ben Bernanke. It also includes the president of the New York Fed, who is a permanent voting member, and four members drawn from the presidents of the 11 regional banks, who vote on a rotation basis. NYT provides us with some background on the four 2011 members who will rotate into FOMC voting positions:

...the one drawing the most attention is Charles I. Plosser, 62, president of the Federal Reserve Bank of Philadelphia since 2006...“I’d like the recovery to be faster, but I’m not sure monetary policy can do much about that,” he said in an interview.

Mr. Plosser said that he has thought all along that the economic slowdown over the summer was temporary and that he “wasn’t a big fan” of Mr. Bernanke’s asset-purchase plan. He wants the Fed to move back toward normal policy.

“If we wait too long, and the economy really begins to pick up and we are too late in reacting, we could end up behind the curve and we could end up with more instability,” he said.

Most economists expect Mr. Plosser to dissent, possibly repeatedly, in 2011, inheriting a role played by Thomas M. Hoenig, president of the Kansas City Fed, who was the lone dissenter eight times this year but does not have a vote next year.
In other words, we may have a dissenter here, who doesn't understand the business cycle, but may have fears about price inflation.

NYT continues:
Richard W. Fisher, president of the Dallas Fed since 2005, is another potential dissenter. A former investment banker, he was the Democratic nominee for the Senate in 1994, but lost to Kay Bailey Hutchison, a Republican. He was a deputy United States trade representative during President Bill Clinton’s second term.

Compared with most Democratic politicians, Mr. Fisher, 61, is wary of the Fed’s latest moves. “The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed,” he said in a speech last month.

His views are also in line with those of fiscal conservatives, like [Congressman] Ryan, who think the Fed is abetting huge government deficits by “monetizing the federal debt.”
Now, this will be interesting. Will he vote against increasing the money supply because it monetizes federal debt, even if it means much higher interest rates?

Next up is:
Narayana R. Kocherlakota, 47, the Princeton graduate, who became president of the Minneapolis Fed last year, will be voting for the first time. He has been more measured about quantitative easing. In a speech last month, he called it “a move in the right direction” but said the ultimate effects were “likely to be relatively modest.”

In other words, he will back Bernanke.

The fourth new voting member, Charles L. Evans, 52, has led the Chicago Fed since 2007. Unlike the other three, he is associated with the camp of so-called doves within the Fed, who are worried about chronic, long-term joblessness and think the recovery is still quite fragile.

Mr. Evans has advocated price-level targeting, a strategy that would allow inflation to run slightly above the desired level in the future to make up for inflation’s being too low today. But in an October speech, he conceded that the proposal would be “a hard pill to swallow” for an institution whose credibility rested on its successes at taming high inflation in the early 1980s.

Mr. Evans is likely to side with Mr. Bernanke on the bond purchases; if anything, he might even push to expand them beyond $600 billion if the recovery weakened again.
It's clear that Evans is a hardcore inflationist.  He will vote with Bernanke money pumping and possibly encourage more.

Bottom line, we may have two dissenters on the FOMC, but not anywhere close enough to take control away from Bernanke. The real show is going to be in the Monetary Policy subcommittee, where Ron Paul will hold hearings.

1 comment:

  1. They missed my favorite quote from Fisher:

    "In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places."
    -Dallas Federal Reserve Bank President, Richard W. Fisher, October 19, 2010