Posted by on May 24, 2017 4:24 pm
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Categories: Bill Dudley Business Committees Economy Economy of the United States Federal Open Market Committee federal reserve Federal Reserve Bank Federal Reserve Bank of Atlanta Federal Reserve Bank of Richmond Federal Reserve System Financial services Inflation targeting Jeff Lacker Jeffrey M. Lacker John Williams Monetary Policy Neel Kashkari Philadelphia Fed Raphael Bostic Richmond Fed US Federal Reserve

Ahead of today’s FOMC minutes, UBS reminds us that there has been substantial turnover on the FOMC, and so the Swiss bank has updated its periodic commentary on FOMC participants, as well as its popular “hawk-dove” chart.

While many of the actors are well-known, there are some unknowns and unfamiliar faces, with more to come. The biggest unknowns are Raphael Bostic, the brand new President in Atlanta and how the Richmond Fed will factor into the debate after Jeffrey Lacker’s departure. In addition, with three vacancies on the Board and Chair Yellen and Vice Chair Fischer’s terms ending early next year, there will be considerable turnover.

Here is the full breakdown of the Fed’s latest “nest”, from UBS’ Seth Carpenter.

The new scale

First, Raphael Bostic, the new president of the Federal Reserve Bank of Atlanta has not established a track record to judge. That said, Bostic is a very smart, well-trained economist, who is comfortable mixing theory and empirical work, so a good guess is that he will not initially be at either extreme. Also uncertain is the role of the Federal Reserve Bank of Richmond. Jeff Lacker resigned after acknowledging leaking FOMC information in 2012. The first Vice President of the Bank gets to take his place, but it is hard to know how that will play out. Richmond is not a voting member this year, so the distinction is slightly less critical.

Among the hawks on our scale, the easiest calls are Esther George (FRB-Kansas City) and Patrick Harker (FRB-Philadelphia). Both have been consistently hawkish in tone. Loretta Mester (FRB-Cleveland) is a career Fed economist, having worked for Charlie Plosser (a noted hawk) at the Philadelphia Fed. She is less doctrinally hawkish than her old boss and takes a nuanced view of the data, although she usually interprets  them with something of a hawkish tilt. Eric Rosengren (FRB-Boston) has become hawkish in recent years, motivated less by inflation fears than by financial stability concerns. His policy prescriptions have become consistently to the hawkish side of the Committee.

We see a large set of centrists on the Committee, large enough to shade some participants to one side or the other.

  • John Williams (FRB-San Francisco) and Stan Fischer (Board) are academic-minded economists  who have been slightly ahead of the Chair in calling for a removal of accommodation. They share a standard macroeconomic framework for policy with the Chair, so the difference is one of degree rather than kind.
  • Rob Kaplan (FRB-Dallas) is a relative newcomer who has not staked out positions that are particularly out of the mainstream.
  • Chair Yellen should rightfully be seen as the center of the Committee. Bill Dudley (FRB-New York) is ex-officio Vice Chair of the FOMC. In practice, the Chair and the Vice Chair along with the Vice Chair of the Board plan policy strategy together, putting Dudley in the center, as well. Jay Powell (Board) has accumulated deep experience and expertise during his tenure on the Board. His views have become more fully articulated, but he has remained in the center.
  • Charlie Evans (FRB-Chicago) is an academic-minded economist who had consistently stressed the undershooting of the inflation target and a lack of fear of a symmetric overshooting. This stance earned him a reputation as an extreme dove, but in the event, inflation ran below the FOMC’s target for several years; yet another example of the conflation of preferences with a policymaker’s economic outlook.
  • Lael Brainard (Board) was an outspoken advocate last year for patience in removing accommodation, particularly in light of international developments. Her dovishness seems to come from a risk-management perspective.
  • Neel Kashkari (FRB-Minneapolis) is another relatively recent addition to the FOMC. He initially seemed reluctant to stake out strong views on policy, but in the last several months has become an outspoken dove, dissenting against a rate hike.
  • Jim Bullard (FRB-St. Louis) is hard to place on the continuum (a statement that we suspect he would approve). He has called for no more interest rate hikes for the foreseeable future, a position that seems to be at the extreme of dovishness. But, he sees the world as being in one of potentially many equilibria, and allows for the possibility that the equilibrium could shift requiring either a tightening in policy or potentially an easing in policy.

A final note on voting. We have separated voters from non-voters, as is customary. One should keep in mind, however, that in practice, all FOMC participants take part in the debate. The recording of the vote and number of dissents matters, but the FOMC has been run as a consensus-driven body for a long time, and the distinction between voter and non-voter is typically overstated.

And visually:

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