Back in November, we previewed the new voting membership of the FOMC and speculated on its possible consequences for monetary policy in 2011:
We bring it to your attention because of the changes that will take place in the composition of the FOMC’s voting membership next year. According to this categorisation, among those who vote there are five doves, four neutrals, one soft hawk, and one outright hawk (and a partridge in a pear tree).
Because of the annual rotation of Fed presidents who vote, next year’s voting membership will look like this:
Doves – Bernanke, Dudley, Evans, Yellen
Neutral – Duke, Bloom Raskin, Tarullo
Soft Hawks — Kocherlakota, Warsh
Hawks – Fisher, Plosser
Three of the four new voters are in the Soft Hawk (Kocherlakota) or Hawk camp (Fisher and Plosser). We concluded that overall the voting composition would be slightly more hawkish than the 2010 version, and could make life a bit more difficult for Bernanke if he needed to do anything bold.
But since then, the US recovery has accelerated somewhat and outright deflation is less of a threat. In other words, barring a severe negative economic shock (which certainly can’t be ruled out), really bold new measures are unlikely to be on the table anyways.
One question that remained, if only for semantic purposes, was whether Fisher and Plosser would be the new Thomas Hoenig(s), formally dissenting from each FOMC decision in protest of QE2.
It seems not, according to the WSJ’s crack Fed-watcher Jon Hilsenrath, who spoke to each of the new voters for his latest article. The takeaway from the piece appears to be that status quo bias — or least a desire not to inject uncertainty into the fragile, nascent recovery — is a powerful force in monetary policy.
Now that QE2 has been started, no sense being a nuisance just for the sake of it:
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, was the latest to signal a desire for continuity from the Fed, even though he is highly skeptical of the program’s effectiveness. “I wish we hadn’t done it, but that doesn’t mean I want to stop it right now,” Mr. Plosser said in an interview with The Wall Street Journal. …
In a separate interview with The Wall Street Journal, Mr. Fisher said, “I would not have voted for QE2 had I been a voting member” last year. … “I do not believe we got a whole lot out of this.” Still, [Fisher] added, he expected the program to be carried through to its planned end in June. “I am not itching to be a dissenter,” he said.
Mr. Evans has supported Fed bond-buying all along. Mr. Kocherlakota said in an earlier interview that while he was skeptical about its benefits, he was a supporter.
As the Washington Post explained recently, the Fed is likely to continue sticking its nose into fiscal issues by pushing for Congress to pursue medium-term budget reform. But monetary policy itself is on hold for the moment, with the Fed more likely to be passively monitoring trends while letting QE2 play out than trying anything new.
Unless, of course, inflation picks up unexpectedly and there is pressure from FOMC members to either raise the federal funds rate or start undoing QE measures, in which case things would get interesting contentious again.
Meanwhile, Fisher recently joined Hoenig in calling for a higher discount rate and is also scheduled to give a speech Wednesday afternoon titled “The Limits of Monetary Policy”. So he’s not totally keeping quiet.
Related links:
FOMC composition and future monetary policy – FT Alphaville
The Fed in 2011 – FT Alphaville