Is the FOMC Becoming More Dovish?

The Federal Open Market Committee is the entity at the Federal Reserve that makes monetary policy decisions, and so the opinion of its twelve members is important to consider when trying to figure out what the Fed might do in the future. Although the institution is quite technocratic, there is a diversity of opinion and outlook among the members, and if the members change, then there could be a shift in the overall stance of the Committee.

Did I say, twelve members? That’s how many it’s supposed to have, but there are currently two vacancies, which haven’t been appointed by Congress. That’s an issue we’ll get to in a bit. First, let’s have a look at the Committee.

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The FOMC

We all know the Chairman of the Committee is Jerome Powell. However, the composition of the Committee changes annually with four of the Federal Reserve Bank presidents rotating each year, (the Vice-chair is always the New York Reserve Bank president).

Depending on how hawkish or dovish those rotating off and on are, it can have an impact on how the FOMC digests data and forms its outlook.

The members who will continue to remain on the Committee are:

• Jerome Powell (centrist-dove)
• John Williams (centrist-hawkish)
• Michelle Bowman (centrist – new, and analysts are still getting a handle on her outlook of the markets)
• Lael Brainard (hawkish)
• Richard Clarida (centrist)
• Randal Quarles (dovish)

The Changes

What really matters is the outlook of the four members who are changing:

• Thomas Barkin (hawkish) is being replaced by Esther George (hawkish)
• Raphael Bostic (mildly dovish) is being replaced by James Bullard (very dovish)
• Mary Daly (centrist) is being replaced by Charles Evans (centrist)
• Loretta Mester (very hawkish) is being replaced by Eric Rosengren (hawkish)

In summary, one very hawkish member is being replaced by someone only mildly hawkish, and one mildly dovish member is being replaced by a full-on dove. Although it’s just two votes, it does shift the general outlook a bit.

The prior composition of the Committee had two hawks, and no doves (with varying levels of hawkish-dovishness in between). The new Committee now balances the number of hawks and doves at one.

Bowman is relatively new, having been confirmed in November. We also shouldn’t forget that Powell was initially seen as being dovish until the last year when he oversaw a significant tightening cycle and garnered criticism for raising rates too fast.

New Members

What could further influence the FOMC is who fills the two remaining vacancies on the board, and given President Trump’s disapproval of the Fed’s actions of late, filling these vacancies might get more attention since nominations are a good way to influence the Committee.

The White House proposed two names to fill the vacancies back in 2017, but they subsequently weren’t confirmed in the Senate. A couple of days ago, one of them – Nelie Liang – withdrew her nomination. The other – Marvin Goodfriend – has been awaiting confirmation since being voted out of committee by the Senate in January last year, as Republicans didn’t have the votes on the floor to confirm him.

But it appears that they do now. Liang’s withdrawal will give Trump the opportunity to nominate someone more in line with his views on rate policy, which would seem to indicate someone more dovish.

Given the relief the markets felt after the minutes of the last FOMC meeting gave some breathing room on the potential next rate hike, the thought of a more balanced Committee might be a bit reassuring.