On paper, the U.S. central bank’s policy-setting committee is set for a hawkish lean this year as incoming voters in the annual rotation among regional Fed presidents replace some colleagues who’ve typically been more dovish.
But the Biden administration could tilt the balance with its picks to fill three open seats.
The incoming voters are Kansas City’s Esther George, Cleveland’s Loretta Mester, St. Louis’s James Bullard and the new president of the Boston Fed, which is in the process of recruiting for the position. In the meantime, Philadelphia’s Patrick Harker will cast Boston’s vote.
They replace Chicago’s Charles Evans, Atlanta’s Raphael Bostic, Richmond’s Thomas Barkin and San Francisco’s Mary Daly. Bullard, Mester and George have all made hawkish comments recently about steeply rising prices.
Still, the bigger question is who will fill three vacancies on the Fed’s Board of Governors. The White House on Dec. 17 said President Joe Biden plans to name his selections by the end of the year. It has declined to provide any update on timing since then.
Whoever he selects will have to balance their views on the appropriate policy approach between getting as many people back into work as possible as the economy continues to adjust to Covid-19, with the threat posed by the hottest inflation in a generation.
Jerome Powell, nominated by Biden to another four years as Fed chair, has already led his colleagues in a hawkish pivot by bringing forward the completion of their asset-purchase program to March.
That clears the path for interest-rate increases as soon as the Fed’s March 15-16 policy meeting, Governor Christopher Waller said on Dec. 17, albeit with the caveat that the omicron variant could call his outlook into question.
He was only speaking for himself, but Waller’s clearly not alone in getting anxious about overheated prices.
Some of the incoming voters have already sounded the alarm on inflation. Bullard and Mester both spoke in favor of speeding up the removal of policy support before the Fed acted at its December meeting. Bullard also said officials should be “nimble” when asked if their March gathering ought be live for interest-rate increases. George was warning about high inflation back in November and has a track record of being on the hawkish wing at the central bank.