Once Chairman Powell is sworn in (expected to be February 4, 2018, after the January meeting), Yellen won’t remain on the FOMC.
Unless Goodfriend and additional Governors are confirmed soon, there will only be three Governors left in February, which would make it harder to run the Fed. This also means that two governors would constitute a quorum, triggering Sunshine Act disclosure. This would imply slower institutional initiatives.
Despite our usual disclaimer that nonvoters also matter greatly, below are our very rough thoughts on the 2018 voter lineup. The 2018 voters lean slightly hawkish; regional Fed presidents more definitively so than Board governors.
FOMC Voter Rotations:
|(*awaiting nomination/confirmation)||2017||2018||Rate Risk (+ means more hawkish)|
|Chair||Yellen (through January)||Powell (from February)||=|
|*Vice Chairman||(vacant)||*(El-Erian / Lindsey / Williams?)||=|
|*Community Bank Gov.||(vacant)||*(Bowman?)||=|
|*NY Fed President||Dudley||*(Midyear switch)||=|
|FRB President 1||Evans||Mester||+|
|FRB President 2||Harker||Barkin||+|
|FRB President 3||Kaplan||Bostic||—|
|FRB President 4||Kashkari||Williams (to Vice Chair?)||+|
A couple of the shifts in Reserve Bank President voters warrant further explanation.
Harker to Barkin: Hawkish Shift
Harker expressed more concern over the slow progress of inflation toward 2 percent: “I’m more guarded in my view about the path of inflation than I am about economic activity…For that reason…I see two rate increases as the likely appropriate path for 2018.” In contrast, we expect incoming Richmond Fed President Barkin likely to express a view as least as hawkish as the median point of view.
Kaplan to Bostic: Dovish Shift
Recently, Kaplan has been concerned about the so-called “catch-up” risk, which would place him on the hawkish side of the center: “We are already at or near full employment now. I believe we’re going to overshoot full employment in the next year…The degree of the overshoot is such my concern is that if we wait too long to remove inflation, we’re going to be playing catch-up.” He also saw the fiscal reforms as creating a “short
term bump” but also higher leverage. On the other hand, Bostic was less convinced of a general trend of more-robust inflation and appeared to want to await more evidence before committing to a stronger pace of rate hikes: “Given where we are and what I am expecting, I would say two to three.”