FOMC 2023: New Year, New Voters in Fed Policymaking
Each year, the Federal Reserve Policy Committee — aka the officials who decide interest rate moves — gets a light refresh, along with four of the district presidents rotation as official voting members and four rotations.
The 2023 rotation brings a more dovish herd, and it comes in a critical year for the US central bank and the US economy.
This year, new voting members of the Federal Open Market Committee include new district chairman Austan Goolsbee, head of the Chicago Fed; Patrick Harker of the Philadelphia Fed; Lorie Logan, the President of the Dallas Fed who started in August 2022; and Neel Kashkari, president of the Minneapolis Fed.
James Bullard of the St. Louis Fed is on rotation as voting members; Susan Collins of the Boston Fed; Esther George, Kansas City Fed chief who is also retiring this month; and Loretta Mester of the Cleveland Fed.
Overall, the FOMC contingent remains broadly similar, with eight of the 12 voting members remaining as of 2022. Non-voting members still lend their voice and views to the proceedings.
After a series of seven consecutive severe interest rate hikes last year to combat rising prices, the Fed is expected to take a more delicate approach to its blunt monetary policy tools this year by reducing rate hikes to a possible slowdown.
For new members of the Fed, whether governors or district presidents, it can take some time to carve out their territory and potentially differ from the consensus, said Ellen Meade, an economics professor at Duke University who has had a 25-year career at the Fed.
History has shown that Reserve Bank chairmen generally tend to be more dissenting than board members; however, even that is only a small percentage – around 7% – of the votes cast, she added.
“I don’t expect to see a lot of dissent in terms of votes,” she said. “I think we could see how they color the data they see.”
“Hawks” and “doves” are terms commonly used to describe the different monetary policy approaches of Fed members. Doves tend to favor looser monetary policy and issues like low unemployment over low inflation. The hawks, however, prefer robust rate hikes and keeping inflation low above all else.
“If I had to call them a hawk or a dove, I’d say last year’s constellation was reasonably hawkish, and this year’s constellation is definitely not as hawkish,” Meade said.
That could change, however, if Federal Reserve Vice Chairman Lael Brainard leaves to head President Joe Biden’s economic council. Brainard was seen as more dovish than Powell and others, so her departure could lead to a more hawkish ideological shift at the top of the Fed.
This particular Fed obviously isn’t as well-known, Meade noted, adding that “because we have new policymakers voting in 2023, we don’t have as much information about their policy inclinations as we had for the voters last year”.
For a potential split to occur, there would need to be significant changes in labor market outcomes — something that hasn’t been seen so far, Meade said.
“Whether [moderating inflation] holds up and the labor market eases but doesn’t take a very negative turn, so I think the consensus is with us,” she said. “I think the question is what happens if the labor market starts to turn quickly?”
The Fed has indicated through its economic projections that it will tolerate a rise in unemployment in the range of 4.5% to 4.75%. But if it’s getting close to or above 5% and inflation hasn’t moderated as much as we’d like, “then I think we’re in a place where we’re going to see more signs of disagreement.”
As it stands, Fed officials have largely been singing from the same songbook, said Claudia Sahm, a former Fed economist and founder of Sahm Consulting.
“Whether it’s voting members or non-voting members, you haven’t seen much resistance in public,” she said. “There really was a unified force of ‘we’re going to go big and we’re going to go fast’.”
This unified message has continued in recent speeches about how the Fed is going to slow it down, be patient and stay the course, Sahm added.
“The Fed is very clear in all areas, even people who you would consider more ‘dovish’, that they don’t want to give up too soon and put us in a situation where they then have to come back and do even more,” says -she. “I don’t think changing who votes will matter much.”
“They’re all hawks now,” Sahm added.
The Fed also does not want to be in a position where it is lulled into a false sense of security by positive inflation data, she added. Fed Governor Christopher Waller put it bluntly in a speech last week: “We don’t want to be rigged.”
“It’s going to take months and months of good news, and frankly, we’re in store for a bumpy ride this year,” Sahm said. “It’s not like every month is going to be good inflation news.”
Federal Open Market Committee 2023
Permanent Voting Members (Board of Governors):
Jerome Powell, President
Lael Brainard, Vice President
Michael Barr, Vice President for Oversight
Michelle Bowman, Governor
Lisa Cook, Governor
Governor Philip Jefferson
Christopher Waller, Governor
John Williams, New York (permanent polling district)
*Austan Goolsbee, Chicago
*Patrick Harker, Philadelphia
*Lorie Logan, Dallas
*Neel Kashkari, Minneapolis
Constituencies without the right to vote:
Helen Mucciolo, Acting First Vice President, New York
Loretta Mester, Cleveland
Raphael Bostic, Atlanta
Mary Daly, San Francisco
James Bullard, St. Louis
Esther George, Kansas City (plans to retire this month)