MacroScope

Think three dissents at the consensus-loving Federal Reserve are a lot? Try 435. According to St. Louis Fed President James Bullard, that’s how many dissents have been logged since 1936 by U.S. central bank policymakers unhappy with the decisions of the majority of their colleagues.

Internal disagreement at the Fed is unquestionably high, so much so that Fed Chairman Ben Bernanke on Friday said policymakers would meet for two days in September, not just one, to discuss their options more fully. Three regional Fed presidents — Dallas Fed’s Richard Fisher, Philadelphia Fed’s Charles Plosser, and Minneapolis Fed’s Narayana Kocherlakota — cast their vote against the Fed’s decision earlier this month to freeze short-term interest rates for two years.

“It depends a lot on the personalities involved, it depends a lot on the situation,” Bullard said of why some decisions draw more dissents than others. Bullard, who does not have a vote this year on the Fed’s policy-setting committee, said he also would have dissented, as did Kansas City Fed President Thomas Hoenig, the host of the annual Jackson Hole meeting of central bankers.

But Bullard said it would be wrong to think that the panel always splits between regional Fed presidents and the Washington-based Fed Board members, who are often seen as more closely aligned with the chairman. Over the years dissents have split nearly evenly between the two groups, he said.

Minneapolis Federal Reserve President Narayana Kocherlakota on Friday released the following statement explaining his vote against the U.S. central bank’s decision this week to declare that interest rates will likely remain near zero until mid-2013:

One of my jobs as president of the Federal Reserve Bank of Minneapolis is to serve on the Federal Open Market Committee. At its last meeting on August 9, the Committee took what I viewed as a significant policy step. I dissented from its decision. I believe that transparency is an essential part of effective policy formation, and so I’m offering this brief explanation of my decision. These views are not necessarily those of others on the Federal Open Market Committee, including presidents Richard Fisher and Charles Plosser.

Entering the meeting, the FOMC was following an unprecedentedly accommodative monetary policy. There were three elements to this policy. First, the Federal Reserve owned over $2.5 trillion of long-term government and government-backed securities. The purchase of the final $600 billion of these assets was announced in November 2010 and completed by the end of June 2011. Second, as it had since December 2008, the Committee was maintaining the fed funds rate at between 0 and 25 basis points. Third, as it had since March 2009, the Committee statement included the forward guidance that it anticipated keeping the fed funds rate at this low level for “an extended period.” The “extended period” is generally interpreted as being between three and six months.

Last month the U.S. Federal Reserve published a new communications policy designed to keep the dissonant voices of central bank officials in check and prevent leaks of market-sensitive information. Among the rules, is a blackout period from the Tuesday before any policy-setting meeting to midnight of the Thursday after during which participants must “refrain from expressing their views about macroeconomic developments or monetary policy issues in meetings or conversations with members of the public.”

So it was curious that on Wednesday, just a day after three members of the Fed’s policy-setting committee revolted against Chairman Ben Bernanke’s pledge to keep interest rates low for the next two years,  one of the dissenters  – Minneapolis Fed President Narayana Kocherlakota – suggested to the Wall Street Journal that his revolt may be only temporary.

On this occasion, I dissented from the Committee’s decision. Regardless, I have nothing but the highest regard for the acumen, integrity, and ability of all other FOMC meeting participants.