The FOMC meeting on June 7th showed divided opinions on the rate hike this year. Post Brexit influences on the US and global market is so significant that most central banks have to revise monetary policies. On the other hand, US economy grows steadily based on the consumption and labor report. The battle between dovish and hawkish now is more intense than ever. What really showed up in the FOMC minutes was the deep disagreement between the hawkish and dovish wings of the committee about the risks. The FOMC will make the decision on June 26th where we can see who is the final winner in this battle. Before this, taking a deep look of FOMC members are necessary to picture the outcome.
The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. This year, only 5 members of the Board of Governors are on the list.
2016 Committee Members
- Janet L. Yellen, Board of Governors, Chair
- William C. Dudley, New York, Vice Chairman
- Lael Brainard, Board of Governors
- James Bullard, St. Louis
- Stanley Fischer, Board of Governors
- Esther L. George, Kansas City
- Loretta J. Mester, Cleveland
- Jerome H. Powell, Board of Governors
- Eric Rosengren, Boston
- Daniel K. Tarullo, Board of Governors
Doves tend to be members of the Fed who are responsible for setting interest rates, but the term also applies to journalists or politicians who lobby for low rates as well. Ben Bernanke and Janet Yellen are both considered doves for their commitment to low interest rates. Paul Krugman, an economist and author, is also a dove because of his advocacy for low rates.
As of 2016, Esther George, the Kansas City Fed President, is considered a hawk. George favors raising interest rates and fears the potential price-bubbles that accompany inflation. Loretta Mester, the Cleveland Fed President as of 2016, studied under Charles Plosser, former president of the Federal Reserve Bank of Philadelphia and a committed hawk. Mester worries about inflation caused by the low interest rates championed by Doves.
The Hawk-to-Dove Scorecard is also showed below.
Clearly more members in the FOMC who are dovish concerned about inflation and consumption. This preference will make the interest rate hike slower in this year. However, there is uncertainties that members’ opinions will switch quickly and have huge impacts on others.
James Bullard, the president of the Federal Reserve Bank of St. Louis has developed an unrivaled reputation for changing his mind on the central question of whether the Fed should raise interest rates during May and June. He surprised markets again by declaring on June 17 that he now favors raising the Fed’s benchmark interest rate just once this year, by a quarter of a percentage point, then holding it steady through 2018. Those comments, which made him the single most dovish voting member of the Fed, came just weeks after he told audiences in Asia that he saw more reasons to gradually raise interest rates over the next several years rather than to hold them steady.
The battle between dovish and hawkish could be clearer after tomorrow’s labor report. It is believed that Independence Holiday will bring more improvements to the labor market. Today’s jobless claim falls than estimate. Less than consensus jobless claim were filled in. If the labor report is decent, Hawkish will have a strong reason to convince the rest members that US economy is strong enough to face more interest hikes while surrounded by global financial risks.