The Fed ended 2016 with a bang when it unanimously voted to raise its interest rate range by 25 basis points. What caught the investors’ attention more, however, was the majority of Fed members predicting THREE interest rate hikes in 2017, one more than the 1-2 hikes seen in September.
The Fed’s dot plot chart featured in our FOMC statement review shows that at least 6 out of the 17 members are seeing THREE rate hikes or more throughout 2017. Thing is, not all of them are VOTING members. This means that who the voters are matters as much (or maybe more) than the median of the members’ estimates.
So, does the Fed’s current list of voters have enough hawkish voices in their midst? Here’s a 411.
Who votes on the policy changes anyway?
The Federal Open Market Committee (FOMC) has 12 members:
- 7 Board of Governors of the Federal Reserve System;
- The president of the Federal Reserve Bank of New York; and
- 4 of the 11 regional Reserve Bank presidents.
The Board of Governors, Chair, Vice Chair, and President of the New York branch ALWAYS get to vote, while regional Fed Presidents rotate each year. Non-voting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee’s assessment of the economy and policy options.
The rotating seats are filled from the following four groups of Banks, one Bank president from each group: (Boston, Philadelphia, and Richmond); (Cleveland and Chicago); (Atlanta, St. Louis, and Dallas); and (Minneapolis, Kansas City, and San Francisco).
Who’s in and who’s out?
Yellen has expressed her willingness to grin and bear Trump until her term as Chair ends in 2018, so we’ll likely hear more from her. Bullard (St. Louis), George (Kansas City), Mester (Cleveland), and Rosengren (Boston) are out of the clique while Evans (Chicago), Harker (Chicago), Kaplan (Dallas), and Kashkari (Minneapolis) will sit at the cool table this year.
Here’s a neat cheat sheet (hey, it rhymes!) for ya!
Based on the chart above, we can see that the doves are still loosely in control of the group. Their votes are not set in stone though. Dudley, for example, has shown a hawkish feather or two in the last year. Some members are also likely to switch camps depending on how Trump’s policies affect employment, inflation, and financial stability.
Speaking of Trump, take note that there are two vacant spots in the roster above. Word around the hood is that the future POTUS will likely nominate hawkish members, which could change the tune of the Fed this year.
So while it’s looking like the uber hawks who saw aggressive rate hikes in December 2016 are those who are NOT voting this year, it’s also not too impossible for the Fed to walk the talk and raise its rates thrice in 2017.
How about you? Do you think that the Fed could become hawkish enough to execute two to three interest rate hikes this year?
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