FOMC Rotation: Non Economists Join the Mix

December 29th, 2016 7:18 am | by John Jansen |

Via WSJ:

New Fed Voters Bring Wide Range of Experience to Rate-Setting Panel

First-time FOMC voters include a former university president and a onetime gubernatorial candidate

Three of the four officials who gain votes next year on the Federal Reserve’s rate-setting committee are from a minority group in the central bank’s leadership: They aren’t economists.

They draw from a mix of experience in banking, engineering and academia. The three also bring relatively fresh perspectives because they all joined the Fed within the past two years and have never before voted on the Federal Open Market Committee.

The three regional Fed bank presidents getting votes for the first time are Philadelphia’s Patrick Harker, Minneapolis’ Neel Kashkari and Dallas’ Robert Kaplan. Chicago Fed chief Charles Evans—a veteran of the central bank, an economist and longtime supporter of keeping interest rates low—also becomes a voter in 2017.

The FOMC normally has 12 voting members, with the seven Washington-based governors—where there are now two vacancies—and the New York Fed chief having permanent spots. Four voting seats rotate annually among the 11 other regional Fed bank presidents.

The FOMC vacancies give President-elect Donald Trump an opportunity to quickly influence the makeup of the rate-setting panel when he takes office by nominating two governors, who then must be confirmed by the Senate. In addition to the current empty seats, some expect governor Daniel Tarullo to depart not long after the new administration takes over.

On the campaign trail, Mr. Trump accused the central bank and Chairwoman Janet Yellen of keeping rates low to help President Barack Obama. The president-elect has said he probably wouldn’t nominate Ms. Yellen to continue as Fed chief after her term expires in early 2018, and would instead prefer to tap a Republican for the job. Since he has criticized Ms. Yellen for holding rates low, investors might expect his central-bank picks to raise rates more aggressively.

The officials who voted in 2016 and won’t in 2017 are St. Louis Fed President James Bullard, Kansas City’s Esther George, Cleveland’s Loretta Mester and Boston’s Eric Rosengren. All but Ms. George are economists.

The FOMC’s December decision to raise short-term interest rates was unanimous, but Ms. George, Ms. Mester and Mr. Rosengren all dissented at times in 2016 to decisions to keep rates steady, preferring instead an increase.

Regional bank presidents without votes still participate in the committee’s policy meetings, so the voting rotation may not change the likelihood that the Fed will raise short-term interest rates in the year ahead. But the new voters’ views are likely to draw more market attention.

The switch comes as Fed critics are pushing for more diversity at the central bank. They often focus on increasing gender and ethnic diversity, but some have said a broader range of educational and professional backgrounds also would widen the central bank’s perspective. Of the 17 governors and presidents, 16 are white, 13 are men and 10 have a Ph.D. in economics.

“If you rely entirely on theory, you are not going to conduct the right policy, because policies have consequences” that in many cases people with real-world experience are particularly well-suited to spot, said former Dallas Fed President Richard Fisher.

Mr. Harker, who has a Ph.D. in civil engineering and a master’s degree in economics, joined the Fed in July 2015 from a perch as president of the University of Delaware. He has shown a willingness to disagree with the consensus, saying in October that he advocated raising short-term interest rates then, even though his colleagues had voted against the idea in September. He also has touted the economic benefits of immigration and free trade, relatively unusual topics for a Fed official to discuss publicly.

“You come into this understanding that while we have a deep bench of theorists and empiricists that need to inform policy, at the end of the day you need to base your judgment not on an ideology, but on the facts on the ground, right, as best we know them,” Mr. Harker said in an October interview.

Mr. Kashkari is a former aerospace engineer who served as a top Treasury Department official during the financial crisis and ran unsuccessfully for governor of California in 2009. He has voiced support for maintaining low interest rates as long as inflation is running below the Fed’s 2% target. But he hasn’t spoken extensively about monetary policy and the economy. Since joining the Fed in January 2016, he has focused on exploring ways to end the problem of banks being so big that their failure could leave taxpayers on the hook in another financial crisis.

He often eschews speeches in favor of town-hall-style question-and-answer sessions open to residents of his district, where economic inequality and “too big to fail” banking issues are often the focus.

There is “great value in having a diversity of backgrounds” for FOMC voters, he said in a statement. “A variety of perspectives, including academic, public-service and private-sector experience, provides a richer understanding of the real economy.”

Mr. Kaplan, who took office in September 2015, previously was a professor and a senior associate dean at Harvard Business School. He also was an investment banker, having spent 23 years at Goldman Sachs Group Inc., and has sought to position himself at the Fed as an expert on financial markets.

Mr. Kaplan, in an interview with the Journal earlier this year, presented himself as a centrist on monetary policy, willing to raise rates but aligned with his colleagues’ desire to move cautiously.

He said in a recent interview he doesn’t think his impact on Fed policy will change when he becomes an FOMC voter. “I’ve learned the degree of influence you have around the table is not necessarily correlated to whether you’re voting or not; it’s correlated to the strength of your research, the strength of your insight,” he said.

Write to Michael S. Derby at and Shayndi Raice at

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