FT Alphaville " Despite all their rage, still just hawks in a cage Among the stealth victories won by Ben Bernanke last week was that he made it easier to neutralise a hawkish shift within the FOMC into the future. Tim Duy has it right, we think, and now that the post-meeting speech wars have begun, it's worth taking a closer look. Begin with this chart of how the FOMC participants have bounced around in their forecasts at each meeting this year (chart via Credit Suisse): This time round, of course, the FOMC statement accompanying the forecasts looks like this: The chart above remains frustratingly anonymous. But it's a safe bet that the thirteen who voted for accomodative policy into 2015 included the eleven who voted for the statement. This group consists of the eight FOMC voters who don't change from year to year (seven governors and the NY Fed president) plus the three voting regional bank presidents not named Jeffrey Lacker. The change in the language commits these participants to a new, higher standard before they can change their minds again in the direction of faster tightening. It's no longer enough for inflation to rise a bit above target or for the recovery to accelerate. The specifics of just what would justify bringing in the guidance and forecasts remains vague, because Bernanke chose not to make any explicit targets. But it was obvious from the presser that the threshold has been raised quite a bit; indeed that was the whole point. We'll know more when the minutes come out. Still, it is unlikely that any of the participants with a forecast into 2015 is far enough away from Bernanke's own interpretation of where the threshold begins that he or she would later use this distinction to break ranks with the chairman, which is always difficult in any case. Bernanke addressed this very issue in the presser. Here is what he said: So there is a consensus that even as personnel changes and so on going forward that this is the appropriate approach and that by following through we will have created a reserve of credibility that we can use in any subsequent episodes that occur. None of this really matters for 2013. The two non-voting FOMC participants whose forecasts extend to 2015 or beyond are, in all likelihood, Charles Evans of the Chicago Fed and Eric Rosengren of Boston Fed, both of whom are super-doves and become voters next year. The other two regional bank presidents who will be rotating in as voters in 2013, Esther George of Kansas City and James Bullard of the St Louis Fed, have just spoken out in opposition to the policy, so the hawks might gain an extra persistent dissenter vote next year. But it won't really make any difference, and the additional headlines made by their dissents will be somewhat offset by the uber-doveishness of the other two. Bernanke essentially has ten guaranteed votes on the committee until his chairmanship ends in January 2014 (unless he's reappointed, which seems unlikely but who knows). But 2014 is a different matter. Three hawkish presidents - Charles Plosser of the Philly Fed, Narayana Kocherlakota from Minneapolis, and Richard Fisher of Dallas - will become voters that year. Bernanke's chairmanship is scheduled to expire in January, as is the term of Jerome Powell. And Elizabeth Duke, whose term technically was meant to expire in January of this year, will be replaced by then. So depending on who is president, the voting membership could by then be very different, with the potential for serious fractiousness. This is why the language last week matters. Even if Bernanke is no longer chairman after January 2014 and his replacement is a hawk, the new chairman would have a tough time steering many of the FOMC votes in such a way that doesn't make these voters seem inconsistent with what they've done previously. That doesn't mean that the new chairman will have no sway, of course, but the new communications framework makes it harder. Obviously this assumes that the economy hasn't already taken off, in which case the gap between the doves and the hawks will have shrunk and the issue will be irrelevant anyway. All of which is also just a consequence of the current and projected dove-hawk breakdown. We'll leave you again with this visual from Credit Suisse economists: Related link: The day after, lingering thoughts and questions about QE3 - FT Alphaville This entry was posted by Cardiff Garcia on Wednesday, September 19th, 2012 at 21:27 and is filed under Capital markets.