New Fed may see more dissent — at least privately
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
WASHINGTON — Are hawks with votes more likely to get their way? This year’s voting members of the U.S. Federal Open Market Committee include a trio forming a stronger hawkish group than last year’s lonely Thomas Hoenig. Rocking the boat on the current round of quantitative easing is unlikely. But their differences with Ben Bernanke, the Federal Reserve chairman, may emerge on interest rates.
The 11 Fed presidents from outside New York rotate onto the FOMC four at a time, while the others still attend meetings even though they can’t vote. Though policy decisions are led by Bernanke and the other most important voices are New York Fed President William Dudley and Fed Vice Chairman Janet Yellen, changes in the voting group can change the tone.
Hoenig, the Kansas City Fed boss, was the one FOMC member favoring less expansive monetary policy strongly enough to record his dissent publicly at every rate-setting meeting in 2010.
This year, Charles Plosser of Philadelphia, Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis have votes. Plosser and Fisher have indicated their preference for tighter monetary policy, while Kocherlakota’s views seem to incline that way, too. The Philly and Dallas representatives have, however, both indicated that they will probably not oppose the controversial bond purchasing program already in place — known colloquially as QE2 — although they want regular reviews before its scheduled expiry in June. Indeed a sudden halt to such purchases, now priced into the Treasury bond market, could prove highly disruptive.
However, Plosser and Fisher have indicated that they would prefer interest rates well above current levels — to reduce disincentives for saving and lessen the danger of inflation — and that they don’t think a moderate rise in rates would hurt economic activity. Fisher has repeatedly proposed a rise in the Fed’s discount rate, at which funds are lent to member banks. The FOMC next meets on Jan. 25-26. It’s unlikely the new voting members will convert Bernanke to their cause. But if sharper private debate translates into public dissent, it’s on interest rates that the new FOMC hawks may choose to show more talon.