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In theory, the US central bank’s policy-setting committee is set to be hard-line this year as voters coming into the annual rotation of regional Fed chiefs replace some typically more pessimistic colleagues.
However, the 2022 accounts will be few, because the Biden administration could tip the scales with its choices to fill three open seats.
The next electors are Esther George of Kansas City, Loretta Meester of Cleveland, James Pollard of St. Louis and the new president of the Federal Reserve Bank of Boston, who is being recruited to the position. Meanwhile, Boston’s Patrick Harker will cast the vote for Boston.
They have replaced Charles Evans of Chicago, Rafael Bostick of Atlanta, Thomas Barkin of Richmond, and Mary Daly of San Francisco. Pollard, Mister and George have made hawkish comments recently about the sharp rise in prices.
However, the bigger question is who will fill three vacant positions on the Fed’s Board of Governors. The White House said Dec. 17 that President Joe Biden plans to name his picks by the end of the year. It has declined to provide any update on the timing since then.
Whoever chooses it will have to balance its views on the appropriate policy approach between getting as many people as possible back to work as the economy continues to adjust to Covid-19, with the threat of the hottest inflation in a generation.
What Bloomberg Says About Economics…
“Biden’s options to fill the three open Fed seats – expected to be announced soon – are likely to tilt the FOMC towards two rate hikes in 2023 from three as currently projected.”
Anna Wong, Chief American Economist
To read the full note, click here
Jerome Powell, whom Biden has nominated for another four years as Fed chair, has already led his colleagues in a hawkish direction by bringing the completion of their asset purchase program to March.
Governor Christopher Waller said December 17 that this paves the way for an interest rate increase once the Fed policy meets on March 15-16, albeit with the warning that the omicron variable could call into question his outlook.
He was only talking about himself, but Waller clearly isn’t the only one worried about price hikes.
Some new voters have sounded the alarm about inflation. Both Pollard and Mister spoke in favor of accelerating the removal of policy support before the Fed acted at its December meeting. Pollard also said officials should be “smart” when asked whether their March meeting should be live to raise interest rates. George was warning of a spike in inflation in November and has a track record of being a hawk at the central bank.
Daly, the outgoing voter in 2021, who is usually an outspoken advocate of patience in tightening policy to get as many people as possible back to work, also took a hard turn in December, declaring that two or three rate hikes might be needed in the 2022.
As recently as September, she was unsure of the need for a rate hike at all next year, when forecasts showed Fed policymakers were evenly divided on the timing of a rate hike between 2022 or 2023.
That has changed sharply, with the Fed’s average forecast estimate presented at its December 14-15 policy meeting shifting to three steps next year followed by three more in 2023, after consumer prices accelerated at the fastest annual pace. In nearly 40 years.
The Federal Reserve has 19 policymakers when all seven seats on its board are filled in Washington. These officials have permanent votes on the Federal Open Market Committee that sets the interest rate, as do the president of the Federal Reserve Bank of New York. The other heads of the 12 regional branches of the US central bank share the votes of the Federal Open Market Committee on an annual, rotating basis.
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