FOMC 2023: new year, new voters in shaping Fed policy

CNN Minneapolis —

Annually the Federal Reserve Policy Committee – i.e. the officials who decide interest rate moves – gets a slight update, with four of the district presidents rotating as official voting members and four rotating.

The 2023 rotation brings a more dovish flock and comes during a critical year for the US central bank and the US economy.

This year, new voting members of the Federal Open Market Committee include new District Chairman Austan Goolsbee, head of the Chicago Fed; Patrick Harker, of the Philadelphia Fed; Lorie Logan, the Dallas Fed chairman who started in August 2022; and Neel Kashkari, chairman of the Minneapolis Fed.

Rotating voting members include James Bullard of the St. Louis Fed; Susan Collins of the Boston Fed; Esther George, the head of the Kansas City Fed, who also retired this month; and Loretta Mester of the Cleveland Fed.

Overall, the FOMC contingent remains largely similar, with eight of the 12 voting members continuing as of 2022. Non-voting members still lend their voices and perspectives to the proceedings.

After a string of seven consecutive hefty interest rate hikes last year to combat rising prices, the Fed is expected to take a more delicate approach to its outspoken monetary policy tools this year, trimming rate hikes to an eventual inactivity.

For new Fed members, whether governors or district chairs, it can take time to demarcate their territory and potentially differ from the consensus, said Ellen Meade, an economics professor at Duke University who had a 25-year career at the Fed. .

History has shown that reserve bank presidents generally tend to disagree more than board members; however, even this is a small percentage – about 7% – of the votes cast, he added.

“I don’t expect we will see much dissent in terms of votes,” he said. “I think where we might see is how they color the data they’re seeing.”

“Hawks” and “doves” are terms commonly used to describe the different monetary policy approaches of Fed members. Doves tend to favor looser monetary policy and issues such as low unemployment over low inflation. The hawks, however, prefer steep rate hikes and keeping inflation low above all else.

“If I had to qualify them as hawk or dove in orientation, I’d say last year’s constellation was reasonably aggressive, and this year’s constellation is almost certainly not as aggressive,” Meade said.

That could change, however, if Federal Reserve Vice Chairman Lael Brainard steps down as President Joe Biden’s economic council head. Brainard has been seen as more accommodative than Powell and others, so his departure could translate into a more aggressive shift in ideology at the top of the Fed.

This particular Fed obviously isn’t as well known, Meade noted, adding that “because we have some new politicians voting in 2023, we don’t have as much insight into their political leanings as we did for last year’s voters.”

For a potential split to occur, some big changes in labor market outcomes would be needed, something that hasn’t been seen up to this point, Meade said.

“Self [moderating inflation] it holds up and the job market softens but it doesn’t take a very bad turn, so I think the consensus is with us,” he said.

The Fed has indicated, through its economic projections, that it would tolerate a rise in unemployment from 4.5% to 4.75%. But if that approaches or exceeds 5% and inflation hasn’t moderated as much as desired, “then I think we’re at a point where we’re going to see more signs of disagreement.”

As it stands, Fed officials have largely sung from the same songbook, said Claudia Sahm, a former Fed economist and founder of Sahm Consulting.

“Whether it was voting or non-voting members, you haven’t seen a lot of pushbacks in public,” he said. “There was really a unified force of ‘we’re going to go big and we’re going to go fast.'”

That UM continued during recent talks about how the Fed would slow down, be patient, and stay the course, Sahm added.

“The Fed has been very clear across the board, even the people you would consider more ‘accommodative’, that they don’t want to give up too soon and get us into a situation where they then have to come back and do even more,” she said. “I don’t think changing who votes will matter much.”

“Now they’re all hawks,” Sahm added.

The Fed also doesn’t want to be in a position where it is lulled into a false sense of security by positive inflation data, he added. Fed Governor Christopher Waller put it bluntly in a speech last week: “We don’t want to be duped.”

“It will take months and months of good news, and frankly, we’re in for a bumpy ride this year,” Sahm said. “It’s not like every month is going to be good news about inflation.”

2023 Federal Open Market Committee

Permanent members with voting rights (Board of Directors):

Jerome Powell, president

Lael Brainard, Vice President

Michael Barr, vice president for oversight

Michelle Bowman, governor

Lisa Cook, governor

Philip Jefferson, governor

Christopher Waller, governor

Voting Districts:

John Williams, New York (permanent voting district)

* Austan Goolsbee, Chicago