Fed doves becoming an endangered species
It‚Äôs official: Instead of policy doves on the U.S. central bank‚Äôs Federal Open Market Committee, there are now only ‚Äúnon-hawks.‚ÄĚ A research note from Thomas Lam at OSK-DMG used the term in referring to recent remarks from once more dovish officials like Charles Evans of the Chicago Fed and San Francisco Fed President John Williams.
The implied message from the latest Fed comments (or reticence), namely from the non-hawks, is that policymakers are clearly assessing a broader spectrum of considerations ‚Äď beyond data-dependence ‚Äď when mulling over the prospect of tapering in September.
Lam neglected to mention the silence from arguably the most dovish Fed member of all, Boston‚Äôs Eric Rosengren. He and Evans were at the forefront of calling for continuous and aggressive stimulus in the form of asset purchases. But recently, the Fed as a committee has shifted away from its emphasis on balance sheet expansion toward forward guidance ‚Äď ¬†thus far with mixed success.
During a briefing with reporters in Greenville, South Carolina last week, I asked Evans about why he appeared to have given up on asset buys, despite still sub-target inflation, high unemployment and anemic growth. In part, he emphasized his own optimistic forecast that growth will bounce back to around 3 percent next year. He added:
I‚Äôve been among the most enthusiastic advocates for as aggressive monetary policy as we can. I think we‚Äôve put in place a lot of aggressive policies. I do take the point that this was intended to be a temporary program and it‚Äôs been going on for over a year and we‚Äôre looking at likely another many months of this ‚Äď mid-2014 I think in terms of being in the vicinity of 7 percent (unemployment).
So I think it‚Äôs been quite aggressive and so I‚Äôm satisfied with how this has played out. But that first (tapering) move is just the first move.
Evans, in his speech, also emphasized the growing importance of forward guidance to the what the Fed sees as its array of unconventional tools.
Once our monthly QE3 flow purchase rate is substantially reduced and (the Fed‚Äôs balance sheet) approach(es) the $4 trillion mark, the composition and efficacy of our policy tools will shift more importantly to our forward guidance regarding to the federal funds rate.