Will the Fed's New Face Look Any Different?

In 2011, about one-third of the group of Federal Reserve economists that make up its Federal Open Market Committee will change. It actually changes every year, as four regional members rotate in and out periodically. But 2011 will be one of those years when the decision-making matters more than usual. Monetary policy has been aggressive ever since the financial crisis, and in November the FOMC voted for a new $600 billion asset purchase plan, set to continue through the fist half of next year. Will the four new members lead the Fed in a different direction?

Sewell Chan of the New York Times has a good feature in today's edition explaining these four new members. Chan's descriptions can be summed up as:

  • Charles I. Plosser, Philadelphia Fed President: A true hawk, who will likely make trouble for Chairman Bernanke and others that support monetary stimulus tactics, like the new quantitative easing program announced in November.
  • Richard W. Fisher, Dallas Fed President: A moderate who prefers fiscal stimulus to monetary stimulus, and could dissent with the rest of the committee on additional quantitative easing.
  • Narayana R. Kocherlakota, Minneapolis Fed President: A cautious dove who tentatively supports the latest quantitative easing effort.
  • Charles L. Evans, Chicago Fed President: A true dove, who will vote and support the sort of monetary expansion that the Fed has been pushing since the financial crisis.

In short, there's one hawk, one moderate who could lean hawkish, and two doves. They will replace four economists, only one of whom ever dissented on votes to loosen monetary policy, Kansas City Fed President Thomas Hoenig. They will join six committee members who always sided with Bernanke. That means the FOMC will consist of nine members who are relatively comfortable with quantitative easing, one who might not be crazy about it, and one who will likely be against it.

The math there isn't complicated. If the FOMC didn't mind when one of its members dissented in the past -- and it didn't, as Hoenig consistently dissented -- then it probably won't in 2011 either. If Fisher joins Plosser in dissenting, then that could cause the other Fed members who shift in their seats a little. But it probably won't be enough for a policy shift. If the doves really believe in that their exit strategy can withdraw credit from the system quickly enough to prevent runaway inflation, then it's hard to see how even two dissenters could cause them to revise their strategy.

In other words, in 2011 you'll get a slightly different Fed. But to the casual observer it will probably look a lot like it did in 2010. While some of new members could attempt to steer the Fed towards restraint, a major shift in policy is unlikely.