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The U.S. Federal Reserve Board building in Washington, D.C. (KAREN BLEIER)
The U.S. Federal Reserve Board building in Washington, D.C. (KAREN BLEIER)

Monetary policy

Fed QE naysayers stand up to be counted Add to ...

Wall Street analysts are all but unanimous in their outlook for Tuesday's meeting of the policy-setting Federal Open Market Committee: Steady as she goes.

So the Federal Reserve will pledge to continue buying government bonds until it compiles $600-billion (U.S.) worth, and the final statement likely will differ little from January's assessment.

But that doesn't mean there will be little debate. Observers of the Fed parse the speeches of each policy maker, assigning them the labels of either "hawk" or "dove." Hawks favour tighter monetary policy to avoid inflation; doves lean toward looser policy to foster economic growth and hiring.

The doves, led by Fed chairman Ben Bernanke, represent the majority, but the hawks are showing their talons. The consensus achieved at the last meeting in January might hold, but not without the supporters of the asset-purchase program being forced to defend their case.

By statute, the FOMC consists of the seven members of the Fed's Washington-based Board of Governors; the head of the Federal Reserve Bank of New York, who serves as vice-chairman; and four positions that rotate among the presidents of the 11 other regional banks on an annual basis. The other regional Fed presidents participate in policy discussions, but don't get a vote on the outcome.

The FOMC currently has only 11 members, rather than 12, because President Barack Obama's nominee for the open spot on the Board of Governors has yet to be accepted by Congress. Here, we separate the hawks from the doves.

Ben Bernanke/chairman/dove

Mr. Bernanke, who was appointed chairman by George W. Bush in 2006 and reappointed by President Barack Obama, is one of the longest-serving of the current Fed policy makers, bolstering his authority. He is the public champion of quantitative easing (QE), and his legacy will be determined by its success or failure. He told lawmakers last month that the Fed stands ready to stomp on inflation the moment rapid price increases emerge - which is what any central banker with a price stability mandate would say. Mr. Bernanke also told legislators that he saw little evidence that inflation was a threat, and that "until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established."

Janet Yellen/vice-chairman/dove

As head of the San Francisco Fed, Ms. Yellen was a leading proponent of aggressive action to fight unemployment. She remains so as Mr. Bernanke's No. 2 at the Board of Governors in Washington, which she joined last year, beginning a 14-year term. Last month, Ms. Yellen said rising bond yields reflected a "scaling down" of the market's expectations of the ultimate size of the Fed's bond buying program relative to what the Fed delivered - not evidence that quantitative easing wasn't working.

Kevin Warsh/Board of Governors/hawk

Former president George W. Bush made Mr. Warsh the youngest ever appointment to the Board of Governors in 2006. Five years later, and still only 40 years old, Mr. Warsh plans to retire from the Fed at the end of the month. But he has left his mark, emerging as a key conduit between Wall Street and Mr. Bernanke during the financial crisis. Judging by public remarks, Mr. Warsh was a grudging supporter of quantitative easing. He said the Fed's asset-purchase program wasn't "open-ended" and he expressed concern that QE was "distorting" international financial markets.

Elizabeth Duke/Board of Governors/dove

The former community bank executive, who joined the Board of Governors in 2008, mostly focuses on regulatory issues in her public remarks. In January, she said there was "accumulating evidence" that quantitative easing had successfully put downward pressure on interest rates. Ms. Duke appears to be a loyal follower of Mr. Bernanke, saying in October that she marvels at his "ability to quickly and coherently summarize a diverse set of observations into a cohesive narrative and use it to transition the discussion to appropriate policy."

Daniel Tarullo/Board of Governors/dove

Mr. Tarullo, a law professor at Georgetown University before joining the Board of Governors in January of 2009, is spearheading the Fed's efforts to overhaul financial regulation. Yet he is on record as a supporter of accommodative monetary policy, saying in April that the "relatively modest pace of the recovery, the continued high rate of unemployment, subdued inflation trends and well-anchored inflation expectations together suggest that the need for highly accommodative monetary policies will not diminish soon."

Sarah Bloom Raskin/Board of Governors/dove

Ms. Bloom Raskin, who joined the Board of Governors in October, has said little publicly about her views on the economy and monetary policy. As the former commissioner of financial regulation for the state of Maryland, Ms. Bloom Raskin was brought in to focus on regulatory issues. As such, observers of the Fed reckon she will follow the consensus view set by Mr. Bernanke.

William Dudley/New York Fed president/dove

The former Goldman Sachs chief economist, who replaced Treasury Secretary Timothy Geithner as head of the New York Fed in January of 2009, is closely aligned with the views of Mr. Bernanke. Last week, Mr. Dudley, who serves at the vice-chairman on the FOMC, said the unemployment rate is falling too slowly and that he saw no need for an "early change in the stance of monetary policy."

Charles Evans/Chicago Fed president/dove

Mr. Evans, who took over the Chicago Fed in 2007, is an enthusiastic supporter of quantitative easing, expressing disappointment with the pace of the U.S.'s economic recovery. Last month, he said an annual growth rate of 4 per cent would be insufficient to "reduce unemployment very rapidly within a reasonable time frame." The Federal Open Market Committee's (FOMC) outlook is for annual growth of 3.4 per cent to 3.9 per cent this year.

Richard Fisher/Dallas Fed president/hawk

A former fund manager and veteran of the Carter and Clinton administrations, Mr. Fisher is known for speaking his mind. That mind is extremely skeptical of quantitative easing. Mr. Fisher didn't have a vote when the program was implemented last year. Now that he's enfranchised for 2011, he says he will block any attempt to expand QE. "It is hard for me to envision a scenario where I would not use my voting position … to formally dissent should the FOMC recommend another tranche of monetary accommodation," Mr. Fisher, who has run the Dallas Fed since 2005, said last month.

Narayana Kocherlakota/Minneapolis Fed president/dove

The former chairman of the University of Minnesota's economics department is on record as believing the recession would have been much worse without the Fed's intervention. He is among the more pessimistic policy makers, predicting growth will be closer to 3 per cent in 2011 than it will be to 4 per cent. "The recession has had and will continue to have a large and persistent impact on the U.S. economy," Mr. Kocherlakota, who became president of the Minneapolis Fed in October of 2009, said last month.

Charles Plosser/Philadelphia Fed president/hawk

Mr. Plosser, the former University of Rochester economics professor who took over as head of the Philadelphia Fed in 2006, opposed quantitative easing last year as a non-voter - and continues to oppose it now that he has a vote, saying the recovery is too strong to warrant such exceptional stimulus. Last month, Mr. Plosser said "should the prospects continue to strengthen, I would not rule out changing the policy stance to bring QE2 to an early close." However, he passed on his first opportunity to cast a vote against QE at the FOMC's January meeting. Mr. Plosser said that changing course without a significant change in economic conditions would undermine the Fed's credibility.

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