Janet Yellen says she tolerates dissent. But judging from 20 years of Federal Reserve history, the Fed chair will use all her powers of persuasion to secure unanimous support for an interest rate increase if she decides to pursue one next week.
The Fed has a track record of closing ranks at key turning points in monetary policy. Officials united at the start of the 1994 and 2004 tightening cycles, while Dallas Fed chief Richard Fisher and Charles Plosser of Philadelphia overcame their hawkish instincts and voted to lower rates to nearly zero in 2008.
Now, as Yellen weighs the first Fed rate rise since 2006, she must convince colleagues on the Federal Open Market Committee who are skeptical of the need for higher rates, while avoiding a hawkish dissent if she promises too much, in order to deliver an undivided policy front that would enhance the decision’s credibility.
“I don’t need unanimity, I think we have to tolerate some dissent,” she said in response to a question after a speech in Washington on Dec. 2. “Nevertheless, I think for the FOMC to be successful and to communicate a coherent policy to the public, we do need a certain degree of consensus.”
BTW: Former Plunge Protection Team member Pippa Malmgren has pointed out to me that among the "tools" Yellen has at her disposal to drive members toward consensus is the current internal investigation by the Fed on leaks. Yellen oversees the investigation and Pippa pointed out to me that all Fed members talk with reporters and banks and anyone of them could become the subject of a deeper investigation, if Yellen deems it necessary. All the members know this so they will be careful with any dissent for fear Yellen directs an investigation in their direction.