A Divided Federal Reserve
Remember that this is arguably the most divided FOMC in the 100-year history of the Federal Reserve. Simply put, the hawks (i.e., Richard Fisher and Charles Plosser) and the doves (Charlie Evans and Eric Rosengren) have radically different views of the economy and what the Federal Reserve should do. The Federal Reserve has a median view with a very wide variance.
Below is a good example of this.
- CNBC – ‘A Lot of Reason’ for More Easing, Says Fed’s Evans
As optimism over additional stimulus from the U.S. central bank faded overnight, Chicago Fed President Charles Evans reiterated calls for further easing on CNBC Friday, arguing that there’s “a lot of reason to do more.” U.S. stocks ended near session lows Thursday after St. Louis Fed President James Bullard dampened expectations for further monetary easing, saying current economic conditions are not weak enough and called the latest meeting minutes that hinted at more easing “stale.” Evans, however, says he has a different view of how the economy is proceeding. “The outlook for growth is 2 percent, if we are lucky 2.5 percent over the next 18 months to 2 years. Back in the Spring we thought it was going to be 2.5-3 percent…we stepped down our outlook, unemployment is 8.3 percent, there’s a lot of reason to do more,” he told CNBC Asia’s “Squawk Box.”
- Reuters – Fed’s Bullard plays down odds of imminent easing
A Federal Reserve official on Thursday leaned against the impression that the U.S. central bank was locked into easing monetary policy at its meeting next month, noting that economic data had improved in recent weeks. Minutes of the Fed’s July 31-August 1 meeting released on Wednesday had highlighted strong support among policymakers for more action. But St. Louis Federal Reserve President James Bullard told CNBC television that the economic outlook had brightened since that meeting. “I do think that the minutes are a bit stale because we have some data since then that has been somewhat stronger,” Bullard, who will be a voting member of the policy-setting committee next year, said in an interview.
To be sure, Bernanke has the votes for QE3. He has always had the votes. But there is also a strong vocal minority against it. He fears the hawks may hit the airwaves to tell the world the Federal Reserve made a mistake and undermine his policy.
This sparked a question from a client (from the message window above):
To be sure, Bernanke has the votes for QE3. He has always had the votes … If that were true, why did minutes say “many” rather than “most”?
To which we answered:
My guess is some of the new governors are probably not expressing an opinion (keeping quiet), but if Bernanke asks, they will vote with him. Hence, he always has the votes when he wants to push the issue.