It’s that time of year at the Federal Reserve, when the voting members that comprise the Federal Open Market Committee undergo their annual rotation. Don’t, however, expect to see any changes in policy this year now that the more hawkish central bankers have come to terms with last year’s dovish pivot. For 2020, the Fed anticipates holding policy rates steady as the economy enjoys some smooth sailing, and it’s a good bet the central bank will achieve that outcome.

Policy making turned more contentious last year as Kansas City Federal Reserve President Esther George and Boston Federal Reserve President Eric Rosengren dissented against all three interest rate cuts. Both rotate off their voting positions this but will be replaced with two other central bankers skeptical of 2019’s rate cuts, Cleveland Federal Reserve President Loretta Mester and Philadelphia Federal Reserve President Patrick Harker. 

Nevertheless, those Fed officials who questioned the necessity or wisdom of rate cuts last year have come to terms with the reality that those moves now appear to have been the most appropriate policy path. This is evidenced by the Fed’s December Summary of Economic Projections. Only four meeting participants envisioned that rates will rise in 2020, and then only by 25 basis points, which equates to one increase. The rest see stable policy rates, with no one clamoring for a quick reversal of last year’s cuts.

This means that as long as the economy tracks reasonably close with the forecasts of central bankers, all their policy preferences will be in alignment. Expect no change in rates except for perhaps some mild push for an increase at the end of the year. A somewhat boring year for policy is probably exactly what Federal Reserve Chair Jerome Powell is hoping for.

To be sure, such a quiescent outcome hinges on the actual evolution of economic activity. The median Fed meeting participant anticipates growth near trend, stable unemployment and some gentle upward pressure on inflation. Material deviations -- or the substantial threat of material deviations -- from these outcomes would prompt a policy shift.

But how likely are material deviations at this point? Last year’s most pressing concerns look to have faded as the outlook turns more favorable. The hangover from a fiscal policy surge in 2018 have largely concluded, the Fed is accommodative rather than looking forward to tighter policy, trade disputes with China seem to be no longer intensifying and global manufacturing activity appears to be stabilizing. The bar to stabilizing activity at a near trend pace looks fairly low at the moment and that’s all the Fed needs to avoid any further rate cuts.

At the same time, none of these factors look likely to turn into tailwinds sufficient to drive activity substantially higher. Barring significant upward pressure on inflation – something that has yet to occur since the Fed adopted its formal inflation target in 2012 – the room to hike also looks limited. Unless conditions arise that drive the unemployment rate down closer to 3%, the Fed will remain wary of boosting rates with inflation still struggling to reach the 2% target.

The doves ruled the roost in 2019 and ultimately the hawks capitulated; there is no appetite for an imminent policy reversal. If the Fed needs to change policy rates, it will only be because conditions have turned in an unexpected albeit interesting direction.

This article was provided by Bloomberg News.