A Divided Federal Reserve
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Remember that this is arguably the most divided FOMC in the 100-year history of the Federal Reserve. Simply put, the hawks (i.e., Richard Fisher and Charles Plosser) and the doves (Charlie Evans and Eric Rosengren) have radically different views of the economy and what the Federal Reserve should do. The Federal Reserve has a median view with a very wide variance.
Below is a good example of this.
- CNBC – ‘A Lot of Reason’ for More Easing, Says Fed’s Evans
As optimism over additional stimulus from the U.S. central bank faded overnight, Chicago Fed President Charles Evans reiterated calls for further easing on CNBC Friday, arguing that there’s “a lot of reason to do more.” U.S. stocks ended near session lows Thursday after St. Louis Fed President James Bullard dampened expectations for further monetary easing, saying current economic conditions are not weak enough and called the latest meeting minutes that hinted at more easing “stale.” Evans, however, says he has a different view of how the economy is proceeding. “The outlook for growth is 2 percent, if we are lucky 2.5 percent over the next 18 months to 2 years. Back in the Spring we thought it was going to be 2.5-3 percent…we stepped down our outlook, unemployment is 8.3 percent, there’s a lot of reason to do more,” he told CNBC Asia’s “Squawk Box.” - Reuters – Fed’s Bullard plays down odds of imminent easing
A Federal Reserve official on Thursday leaned against the impression that the U.S. central bank was locked into easing monetary policy at its meeting next month, noting that economic data had improved in recent weeks. Minutes of the Fed’s July 31-August 1 meeting released on Wednesday had highlighted strong support among policymakers for more action. But St. Louis Federal Reserve President James Bullard told CNBC television that the economic outlook had brightened since that meeting. “I do think that the minutes are a bit stale because we have some data since then that has been somewhat stronger,” Bullard, who will be a voting member of the policy-setting committee next year, said in an interview.
Comment
To be sure, Bernanke has the votes for QE3. He has always had the votes. But there is also a strong vocal minority against it. He fears the hawks may hit the airwaves to tell the world the Federal Reserve made a mistake and undermine his policy.
This sparked a question from a client (from the message window above):
To be sure, Bernanke has the votes for QE3. He has always had the votes … If that were true, why did minutes say “many” rather than “most”?
To which we answered:
My guess is some of the new governors are probably not expressing an opinion (keeping quiet), but if Bernanke asks, they will vote with him. Hence, he always has the votes when he wants to push the issue.
Category: Federal Reserve, Think Tank
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
How are those votes “influenced”? Bernanke has too much power for one man.
Cass,
American institutions DIFFUSE power. If we had the GOP gold standard and no Fed, all the men in DC who were left would have MORE power.
“My guess is some of the new governors are probably not expressing an opinion (keeping quiet), but if Bernanke asks, they will vote with him. Hence, he always has the votes when he wants to push the issue.”
Let’s be clear about this.
It depends on what one means by “new.” Since early 2009 there have been 5 members added to the BOG. Yellen’s views are well known to be doveish. Raskin and Tarullo are usually classified as a hawk and a dove respectively. Powell and Stein’s views are unknown but they are a Democrat and a Republican respectively so one may read between the lines. Thus I count maybe three available votes for easing among the new BOG members should Bernanke decide he needs them. (Duke will be opposed to it of course.)
Since seven votes in total will be needed Bernanke will need three more. The remaining five votes are all Fed presidents and Lasker will not vote for easing even if his life depended on it. Lockhart just delivered a speech which basically said “no”. On the other hand, Dudley and Pianalto are usually classified as doves, and Williams’ recent speeches indicate he is in favor of easing.
So by my count that makes exactly seven votes for easing.
Bernanke may have the votes, but “to be sure”, it is only by the skin of his teeth.
Now, when the final votes come down for QE3, Lasker will be the sole dissenter. But we know better, right?
I beg you pardon. Powell is a Republican. Stein is a Democrat.