New Stimulus Dovetails With Shift at Fed

Whether they will or they won't depends in part on who "they" are.

One of the biggest questions looming for 2012 is whether the Federal Reserve will pursue more extraordinary measures to ease monetary policy, on top of its already lengthy list of efforts to stimulate the economy.

The better tone of economic data lately might suggest the Fed is due a breather. But the changing composition of the Fed's open market committee—the group that sets interest rates—hints at the opposite.

 

The voting members of the FOMC are constantly in flux. This is part design, part politics. The committee is composed of 12 members—the seven members of the Fed's board of governors plus the president of the New York Federal Reserve, and four of the 11 remaining regional presidents on a rotating basis. There are only 10 members serving at present because Congress has refused to confirm some of President Obama's appointees to the Fed board.

With the president having just nominated a new bipartisan pair of economists—Jeremy Stein and Jerome Powell—to help appease Congress, it is possible the Fed board could be filled next year. That may have less impact on the Fed's monetary-policy actions, however, than the rotation of regional bank presidents. Among the four losing their vote are the FOMC's three most hawkish members—Narayana Kocherlakota of the Minneapolis Fed, Richard Fisher of Dallas and Charles Plosser of Philadelphia—all of whom spoke against the Fed's latest bond-buying program and voted against it.

Those gaining a vote, meanwhile, are John Williams of the San Francisco Fed, Cleveland's Sandra Pianalto and Atlanta's Dennis Lockhart, all considered more dovish than the outgoing group. That leaves the final incoming member—Richmond's Jeffrey Lacker—as perhaps the lone uber-hawk in 2012. That is why many strategists are betting the Fed will ultimately green-light new measures if the economy remains lackluster.
Of course, officials could decide to resist further stimulus moves to avoid appearing too aggressive in an election year. But that seems unlikely given the concern core members like Chairman Ben Bernanke have voiced about high unemployment and the mediocre economic outlook.
If push comes to shove at in 2012, there will likely be fewer pushing back.

WSJ Ahead of the Tape | By Kelly Evans | Published December 30th, 2011