A Dovish Fed: The FOMC’s New Voting Members

Board of Governors

Since its inception, the Fed has done its best to walk a fine line between fighting inflation and keeping the economy growing at a healthy pace. Policy has often been dictated by the balance of power between hawks anxious to keep inflation under wraps and doves willing to adopt a looser monetary policy in order to stimulate economic growth. The Financialist looked at the track records of the new and permanent voting members of the Federal Open Market Committee, and our review suggests the FOMC will remain decidedly dovish in 2013.

 

 

Chicago: Charles Evans (dove)

At the beginning of 2012, Evans urged the Fed to maintain interest rates at or near zero until either unemployment fell to 6.5 percent or inflation hit 2.5 percent. The FOMC’s hawks put a stop to Evans’ idea, fearing that increased liquidity would saddle the economy with crippling inflation. However, at its last meeting of the year, the FOMC voted to frame its third easing program around the specific targets Evans has been advocating.

 

 

Saint Louis: James Bullard (Hawk)

As a rotating member James Bullard did not get to vote at the FOMC meeting last year, but he was still a vocal opponent of monetary action. Weeks before the FOMC rolled out its third easing program, he told CNBC he opposed any new asset purchases. Earlier this year he expressed his unease about a third quantitative easing program. “Some say that if inflation increases, then we know how to combat it,” he said at the Credit Suisse Asian Investment Conference last spring. “That is true, but the hard-learned lesson of the 1970s was that if the inflation genie is let out of the bottle, it can be extremely difficult to get it back into the bottle.”  These views are not likely to change now that Bullard gets to vote on the Fed’s ultra-low rate policies.

 

 

Boston: Eric Rosengren (Dove)

Last August, amidst a heated presidential campaign, Rosengren called for an open-ended easing program of a “substantial magnitude” to jumpstart a sluggish U.S. economy. “We don’t get to pick the timing of a global slowdown,” he said. “If there’s a slowdown and you have an independent central bank, the appropriate response is to act. I think that’s exactly what we should do.” Weeks after this pointed call to action, at its September meeting, the FOMC rolled out a third easing program (QE3), that was much inline with Rosengren’s August statement.

 

 

Kansas City: Esther George (Hawk)

Relatively little is known about Esther George, who took over as the head of the Kansas City Federal Reserve little more than a year ago. What we do know is that, along with fellow Missourian James Bullard, she’s a strong inflation hawk. She’s also been known to do away with central banker verbiage in favor of a clearer manner of speaking. This summer in some impromptu remarks to a group of Kansas City business executives, for example, she asked, “Is there anyone not borrowing today or purchasing a house because interest rates aren’t low enough?”

 

 

New York: William Dudley (dove)

As the president of the New York Federal Reserve Bank, Dudley is a permanent member of the policy-making Federal Open Market Committee. A close ally of Chairman Ben Bernanke, Dudley has been unhappy with the strength of the recovery and has backed more monetary action as a way to bolster the economy.

 

 

 

Elizabeth Duke, Federal Reserve Governor (Leaning Dove)

Appointed by President George W. Bush in 2008, Elizabeth Duke has staked out a position as an advocate for stronger government action to improve the U.S. housing market. A former community banker, Duke is concerned that banking regulations like Basel III and the Dodd-Frank Act could act as a drag on the U.S. economy and its fragile housing market.

 

 

Jerome Powell, Federal Reserve Governor (Leaning Hawk)

Jerome Powell, a former investment banker, is a seasoned finance executive and often serves as the central bank’s connection to Wall Street and financial markets. While his views on monetary policy aren’t well known, he was chosen as a voting member when conservatives complained President Obama’s first choice, MIT economist Peter Diamond, was too Keynesian. Powell replaced Diamond as Obama’s nominee and proved to be a candidate conservatives in Congress could live with.

 

 

Sarah Bloom Raskin, Federal Reserve Governor (Moderate Dove)

Since joining the Fed in late 2010, Sarah Bloom Raskin has called for the swift implementation of the Dodd-Frank rules and expressed concern about the wage disparity dividing Americans. “This inequality is destabilizing and undermines the ability of the economy to grow sustainably and efficiently,” Raskin said in a recent speech. These disparities, she added, help “drag down maximum economic growth and are anathema to the social progress that is part and parcel of such growth.”

 

 

Jeremy Stein, Federal Reserve Governor (Leaning Dove)

Nominated last year by President Obama along with Jerome Powell, the Harvard University economics professor has supported the Fed’s asset purchases. But late last month, Stein questioned whether the Fed should also buy Treasuries, noting that there may be “diminishing returns” from buying U.S. Treasuries if companies hold back on investing and instead opt to refinance debt or return some money to investors. Instead, he said, the Fed’s money might be better spent on mortgage-backed securities, which could provide more of a kick to the economy. His calls ultimately went unheeded when the FOMC opted to buy $45 billion a month in longer-term Treasuries and maintain its $40 billion monthly purchases of mortgage-backed securities.

 

 

Daniel Tarullo, Federal Reserve Governor (Dove)

Tarullo is a confirmed dove and a strong advocate for more easing as a way to get the economy back on track. He has also made a name for himself at the Fed as an advocate for tighter bank regulations. Since joining the Fed in 2009, the former Clinton administration official has overseen the implementation of the Dodd-Frank Act. More recently, in a high profile challenge, he called on Congress to cap the size of the nation’s largest financial services firms.

 

 

Janet Yellen, Vice Chair of the Federal Reserve Board of Governors (Dove)

The former president of the San Francisco Federal Reserve is a leading dove who supported the idea of a third easing program. In November, she also signaled the Fed’s willingness to tie its easing program to specific macroeconomic targets. “The three elements of forward guidance that were adopted by the FOMC in September 2012 would have been unthinkable in 1992 and greatly surprising in 2002, but they have, in my view, become a centerpiece of appropriate monetary policy,” she told an audience at the University of California, Berkeley’s Hass School of Business last November in a speech that paved the way for the FOMC’s December announcement that it would adopt the Evans rule.

 

 

Ben Bernanke, Chairman U.S. Federal Reserve (Dove)

Over the past year, Chairman Bernanke was never fully content with the economy’s performance. Even when the economy showed some strength, Bernanke wasn’t ready to abandon the idea of a third easing program, often pointing to a still-weak housing sector and high unemployment rate. The chairman was likely a prime mover behind the FOMC’s support for a bold monetary stimulus program that now totals $85 billion in monthly asset purchases. Bernanke, who was appointed by President Bush, has repeatedly expanded the central bank’s balance sheet in an attempt to jumpstart a U.S. economy that has not yet fully recovered from the Great Recession.

 

Photos courtesy of: Medill DC (Flickr), Wikimedia Commons, Board of Governors of the Federal Reserve System, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Saint Louis, Federal Reserve Bank of Chicago, Federal Reserve Bank of Boston