More hawkish votes appear The Fed is one step closer to aggressive rate hikes?

In the new year, the regional Fed chair, who has the voting power in the FOMC on the Fed's Interest Rate Policy-Making Committee, is likely to strongly support a rate hike in response to high inflation.

In 2022, the voting seats of the Federal Open Market Committee (FOMC) will undergo a regular rotation, and the president of the Kansas City Fed, the chairman of the St. Louis Fed, the chairman of the Cleveland Fed and the chairman of the Boston Fed will become the voting committees of the committee, according to the Wall Street Journal. Atlanta Fed President Bostic, Chicago Fed President Evans, Richmond Fed President Barkin and San Francisco Fed President Daley will no longer have the right to vote.

Of the four new votes, Kansas City Fed President Esther George is one of the Fed's staunchest hawks, and in more than half of the FOMC votes over the past, she has always supported monetary policy that is tighter than other members. She and St. Louis Fed President James Bullard were early advocates of pulling out of stimulus measures in 2021.

Cleveland Fed President Loretta Mester has also tended to be more hawkish than other members, and she is the only central banker to disagree with some of the stimulus package offered by the Fed at the start of COVID-19 2020.

One issue in the scheduled rotation is that the Boston Fed is expected to get a voting seat, but due to the resignation of former Boston Fed President Eric Rosengren last November, there is still a rotational voting committee vacancy. According to Fed practice, Philadelphia Fed President Patrick Harker, often seen as a monetary policy centrist, could become a voter on the FOMC before the Boston Fed has a new chairman.

The Fed welcomed 3 hawks and 1 centrist

Fed interest rate policy is co-authored by seven board members (permanent votes) and five of the 12 regional Fed chairs. Among the regional fed presidents, the chairman of the New York Fed is a permanent voting committee like the governor, and the other 4 are rotated once a year.

Biden has nominated Powell to remain Chairman of the Fed, Director Brainard has been nominated as Vice Chairman, and three of the 12 members of the Fed's Monetary Policy Committee remain vacant and one seat on the Rotating Vote Committee (Chairman of the Boston Fed).

Among them, The Fed Governor Randal Quarles stepped down at the end of December last year, and vice chairman Richard Clarida's term will end in January.

On the whole, this year's voting committee is more "hawkish" than last year's voting committee, the most obvious is that the more "hawkish" Cleveland Fed President Meister replaced the well-known dovish, Chicago Fed President Evans, and the overall position of several other replaced voting committees is also biased.

Originally, Boston Fed President Rosengren was also known as the "Big Hawk", but with his departure, as mentioned above, it may be temporarily replaced by a centrist Fed president.

Will there be an impact on Fed policy?

After all Fed officials said at their Dec. 15 meeting last year that they expected to raise interest rates in 2022, the shift is unlikely to significantly alter the Fed's policy process, but these changes will draw more public attention to the statements of some "hawkish" officials.

At its FOMC meeting last December, the Fed officially announced speeding up tapers, doubling the size of its bond purchases, bringing the stimulus to an end in March, thus preparing for a series of rate hikes starting next spring.

Economic forecasts released after the meeting showed that all 18 officials are expected to raise rates in 2022, with most of them expecting three rate hikes in 2022, 0.25 percentage points each. As recently as last September, about half of the members did not expect to raise interest rates in 2022.

Fed officials have completed a major policy shift, showing much greater concern that inflation could remain high. The Fed's preferred inflation indicator, the core PCE price index that excludes food and energy prices, rose 4.7 percent year-on-year in November, the highest level in nearly 40 years.

Economist Kathleen Bostjancic at Oxford Economics said that given the outcome of the Fed's recent meeting, "the whole FOMC has actually become more hawkish".

Wall Street News previously mentioned that the market has drawn a roadmap for the Fed to raise interest rates: once in March, June and December this year, but it is worried that the Fed will add too much.

Over the years, the Fed has been raising interest rates too much and not "breaking" what is not closed. For example, from 1998 to 2000, when interest rates were raised, Greenspan was going to "break" the stock market bubble, and the task was accomplished, but the United States began to decline in 2001.

With the Biden administration's decline in tolerance for high inflation, the rise to power of multiple Fed "hawkish" officials could increase the risk.

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