FOMC Seen More Hawkish on Monetary Policy
03:57 p.m Dec 23, 1999 Eastern
By Marjorie Olster
NEW YORK (Reuters) - The annual changing of the guard among voting Federal Reserve officials will likely tilt monetary policy in a more hawkish direction in 2000, Fed-watchers said on Thursday.
The rotation of four regional Fed bank presidents into voting slots on the Federal Open Market Committee (FOMC) next year will usher in at least two of the tougher inflation warriors in the place of more moderate voices.
``The replacement members are quite a bit more hawkish than
the members that are going out and that does put some pressure on (Fed chair Alan) Greenspan. But at the end of the day, he does call the shots,' said J.P. Morgan economist Marc Wanshel.
The new configuration of the FOMC will mean Greenspan will face little resistance if he wants to ratchet interest rates up a few more times next year and it may even make a difference of one extra rate hike, Wanshel said.
To keep the hawks at bay and a sense of harmony within the powerful central bank, Wanshel said the FOMC will be more likely to keep a ``tightening bias' in place at meetings where no
change in interest rates is made.
Four of the 12 regional presidents vote in rotating FOMC slots
in any given year while New York Fed President William
McDonough is a permanent voter and vice-chairman of the
FOMC. In addition, the seven Fed governors have votes but
currently there are two unfilled posts on the board.
Cleveland Fed President Jerry Jordan, Alfred Broaddus of
Richmond, Robert Parry of San Francisco and Jack Guynn of
Atlanta all get to vote on interest rate policy next year.
They replace Robert McTeer of Dallas, Edward Boehne of
Philadelphia, Michael Moskow of Chicago and Gary Stern of
Minneapolis.
Incoming Jordan and Broaddus have reputations as aggressive
inflation fighters while outgoing McTeer dissented twice against
higher interest rates this year and Boehne is traditionally seen as
a dove.
``Broaddus is definitely a confirmed and pretty steady hawk,'
said Wanshel. ``Jordan is an old-style monetarist and is
uncomfortable with money supply growth on the high side.'
Monetarism, the belief that money supply is closely tied to the
ups and downs of the economy, held greater sway at the Fed in
past decades but has now fallen out of favor within dominant
circles.
Richmond Fed's Broaddus has consistently sided with the
hawks at the Fed and would not hesitate to dissent in favor of
tighter policy, said Paul Kasriel, chief domestic economist at
Northern Trust.
``Broaddus really does have a view of the economy and it's
consistent,' Kasriel said. ``He is the brightest economic mind in
the system among the presidents. He is a very good economist.'
San Francisco's Parry was once an adamant hawk but
according to Wanshel, ``he has mellowed.'
Parry seems to lend credence to ``New Era' thinking that says
the economy can now grow faster without inflation due to
revved up labor force productivity.
And back in September he even said the Fed must be cautious
about preemptive rate changes because its inflation forecasting
models have proved unreliable.
Guynn of Atlanta is expected to lend his support to the
chairman in any controversial policy decisions. He is not an
economist by training -- he's an engineer -- but he has a long
history at the Atlanta Fed where he has worked since 1964.
McTeer is probably the most notable departing voter.
He made a splash with his back-to-back dissents against the
Fed's June and August rate hikes and with his outspoken
advocacy of the ``New Era' economy. He said he wanted to
see the Fed push the limits of noninflationary growth.
His opposition was even more surprising because Fed
presidents have rarely dissented in favor of easier policy and
have historically been more hawkish that Fed governors.
But these are topsy-turvy days and Fed-watchers say
Greenspan, his vice-chair Roger Ferguson and McDonough are
looking like the most dovish policy-makers on the FOMC for
the coming year.
Also: Christmas Wish from Paul Kasriel
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