On the wings of doves

October 1, 2010

Fed officials eager to give the ailing job market some relief are showing their stripes – or perhaps their feathers – and adding to their ranks, making it seem more likely the U.S. central bank will provide further monetary easing.

USA-FED/TWISTThe Fed has a dual mandate to provide price stability and ensure full employment. Policy makers who place priority on supporting economic growth and keeping unemployment low are called doves while those who would endure uncomfortable unemployment in order to keep inflation at bay are called hawks.

The doves were not only louder but became more numerous this week. First, the Senate voted to confirm Janet Yellen as Fed vice chairman and Sarah Raskin as a member of the board of governors.

Yellen, currently the San Francisco Fed president, has a reputation as one of the most dovish officials in the Fed system.  She will now vote at every Fed policy-setting meeting, instead of at meetings every third year.

Raskin, a state bank regulator, has not widely aired her policy views, but in her confirmation hearing she urged the central bank not to neglect the employment side of its mandate, suggesting she’ll roost on the dovish edge of the flock. 

In addition, a number of policy makers voiced outright support for easing this week, while several expressed concern with the weak state of the recovery. “Further action is likely to be warranted” unless the outlook improves, New York Fed President William Dudley said. Chicago Fed President Charles Evans said higher unemployment and low inflation suggest additional accommodation would be “desirable.”

Boston Fed chief Eric Rosengren, while less explicit, seemed clearly in league with the doves, calling for a vigorous monetary policy response, and saying that unemployment, sluggish growth and low inflation are a serious problem.

Others, while not explicitly backing further easing,  emphasized headwinds to the recovery.  Chairman Ben Bernanke himself could be counted in that category:

“Even though our economy is stabilized and growing, clearly it’s still a very difficult time for many Americans,” he said. “We need to do our part to help the economy recover and make sure that jobs come back to the United States.”

The hawks made their opposition to easing known. But the unusually loud noises from the doves suggest consensus is building in favor of Fed easing unless data in coming weeks suggest a surprisingly robust upswing to the recovery.

(Photo credit: Federal Reserve. Members of the Fed’s Federal Market Open Committee pose in the Fed’s board room. Janet Yellen is standing on far right, William Dudley is standing on far left.  Charles Evans is standing, fourth from left, Eric Rosengren is standing, second from left. Bernanke is seated in the middle. Sarah Raskin is not pictured.)

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