Every year the Federal Reserve’s policymaking committee — aka the officials who decide interest rate moves — gets a slight refresh, with four of the district presidents rotating out as official voting members and four rotating in.
The 2023 rotation brings a more dovish-leaning flock, and it comes during a critical year for the US central bank and the American economy.
This year the Federal Open Market Committee’s new voting members include the newest district president Austan Goolsbee, head of the Chicago Fed; Patrick Harker, of the Philadelphia Fed; Lorie Logan, the Dallas Fed president who started in August 2022; and Neel Kashkari, president of the Minneapolis Fed.
Rotating out as voting members are James Bullard of the St. Louis Fed; Susan Collins of the Boston Fed; Esther George, the Kansas City Fed chief who’s also retiring this month; and Loretta Mester of the Cleveland Fed.
On the whole the FOMC contingent remains largely similar, with eight of the 12 voting members continuing from 2022. The non-voting members still lend their voices and perspectives to the proceedings.
Following a stretch of seven consecutive heavy-handed interest rate hikes last year to battle rising prices, the Fed this year is expected to take a more delicate approach to its blunt monetary policy tools by downshifting on rate increases to an eventual idle.
Doves and hawks
For new Fed members, be they governors or district presidents, it can take a while to stake out their territory and potentially differ from consensus, said Ellen Meade, a Duke University economics professor who had a 25-year career at the Fed.
History has shown that the Reserve bank presidents typically tend to dissent more than board members; however, even that is a small percentage — about 7% — of votes cast, she added.
“I’m not expecting that we will see a lot of dissent in terms of votes,” she said. “I think where we might see it is how they color the data that they’re seeing.”
“Hawks” and “doves” are commonly used terms to describe Fed members’ differing monetary policy approaches. Doves tend to favor looser monetary policy and issues like low unemployment over low inflation. Hawks, however, favor robust rate hikes and keeping inflation low above all else.
“If I had to qualify them as the hawkish- or dovish-leaning, I would say that last year’s constellation was a reasonably hawkish one, and this year’s constellation is almost certainly not quite as hawkish,” Meade said.
That could change, however, if Federal Reserve Vice Chair Lael Brainard leaves to head President Joe Biden’s economic council. Brainard has been considered as leaning more dovish than Powell and others, so her departure could result in a more hawkish shift in ideology at the top of the Fed.
This particular Fed is obviously not quite as well known, Meade noted, adding that “because we have some new policymakers voting in 2023, we don’t have as much information on their policy inclinations as we did for last year’s voters.”
For any potential split to occur would take some large moves in labor market outcomes – something not seen to this point, Meade said.
“If [moderating inflation] holds up and the labor market softens but doesn’t take a very negative turn, then I think consensus is with us,” she said. “I think the question is what happens if the labor market starts to turn quickly?”
The Fed has indicated, through its economic projections, that it would tolerate unemployment rising to the 4.5% to 4.75% range. But if that grows closer or past 5% and inflation hasn’t moderated as much as desired, “then I think we’re in a place where we’re going to see more signs of disagreement.”
As it stands now, Fed officials have largely been singing from the same songbook, said Claudia Sahm, a former Fed economist and founder of Sahm Consulting.
“Whether it was voting members or non-voting members, you didn’t see a lot of pushback in public,” she said. “There was really a unified force of ‘we’re going to go big, and we’re going to go fast.’”
That unified messaging continued during recent speeches on how the Fed would slow it down, be patient and stay the course, Sahm added.
“The Fed is being very clear across the board, even people you would think of as more ‘dovish,’ that they do not want to let up too soon and get us into a situation where then they have to come back and do even more,” she said. “I don’t think that switching up who’s voting will matter much.”
“They’re all hawks now,” Sahm added.
The Fed also does not want to be in a position where it is lulled into a false sense of security by positive inflation data, she added. Fed Governor Christopher Waller put it bluntly in a speech last week: “We do not want to be head-faked.”
“It’s going to take months and months of good news, and frankly, we’re in store for a bumpy ride this year,” Sahm said. “It’s not like every month is going to be good news on inflation.”
2023 Federal Open Market Committee
Permanent voting members (Board of Governors):
Jerome Powell, chair
Lael Brainard, vice chair
Michael Barr, vice chair for supervision
Michelle Bowman, governor
Lisa Cook, governor
Philip Jefferson, governor
Christopher Waller, governor
John Williams, New York (permanent voting district)
*Austan Goolsbee, Chicago
*Patrick Harker, Philadelphia
*Lorie Logan, Dallas
*Neel Kashkari, Minneapolis
Helen Mucciolo, interim first vice president, New York
Loretta Mester, Cleveland
Thomas Barkin, Richmond
Raphael Bostic, Atlanta
Mary Daly, San Francisco
James Bullard, St. Louis
Esther George, Kansas City (plans to retire this month)