June 19, 2013, 5:09 PM ET
Lone Dissenter No More: Fed Officials Have Divergent Objections
By Michael S. Derby
Dissenting votes on the Federal Open Market Committee usually don’t have much impact on the actual direction of monetary policy, but what happened Wednesday may be different.
- St. Louis Fed President James Bullard
- Reuters
There was little surprise that Kansas City Fed President Esther George again opposed the FOMC decision to press forward with its bond buying stimulus. In something unprecedented for an official in her first FOMC voting rotation, Ms. George is now four for four in casting dissents, as she again worried very easy Fed policy will create new bubbles and fuel an inflation break out.
Meanwhile, St. Louis Fed boss James Bullard took an unexpected path and dissented in what was effectively the opposite direction. Some of what Ms. George fears, Mr. Bullard would like to see. His dissent stated that he’d like the Fed to more explicitly signal it will defend its 2% inflation target, in a climate where price pressures are well below where he’d like them to be.
The officials’ dissents came at a meeting where Fed officials indicated growth has improved and labor market conditions are getting better. The FOMC gathering suggested that at some point later this year the central bank will slow down what is now an $85 billion per month program of buying Treasury and mortgage bond purchases. But the thing that may complicate that path is the thing that worries Mr. Bullard.
Inflation is well under the Fed’s 2% target. Central bankers agree that price pressures above and below the target are equally unacceptable, and worthy of being addressed by monetary policy. Most on the Fed continue to believe inflation will move back toward target because the factors that are weighing it down now are “transitory.”
In his post FOMC press conference, Fed Chairman Ben Bernanke said “inflation that’s too low is a problem,” and he noted central bankers are “concerned” about the present level of prices. “We would like to get inflation up to our target,” he said, noting that will be a factor in how officials think about monetary policy over coming months.
Mr. Bullard’s dissent personifies these concerns. In contrast, Ms. George’s worries, while shared by some other central bankers, have in recent years not gotten very far with other central bank officials. Indeed, to the extent Fed officials have dissented in recent years, it has been to stake out hawkish positions. Given what the central bank has done, those who are skeptical of stimulus have been steamrollered by the majority.
Ms. George succeeded Thomas Hoenig, who dissented at every single meeting in 2010, to little effect. More recently, Richmond Fed chief Jeffrey Lacker went eight for eight with his dissents last year in his FOMC turn. He had a lot of problems with the path followed by the Fed, culminating with his opposition to the still ongoing bond buying program announced in September 2012.
The biggest internal insurrection happened in 2011, where two meetings saw an unprecedented three officials dissent against the collective decision of the FOMC.
The direction of monetary policy is firmly in the hands of Mr. Bernanke, vice-chair Janet Yellen, and New York Fed chief William Dudley. All have been consistently disposed to taking aggressive action to help speed up the rate of growth and lower unemployment.
The Fed’s dovish core continues to hold the reigns to central bank actions. And if inflation cools further, or expectations of future prices ebb, Mr. Bullard’s dissent may signal the direction the Fed will head.
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