In the early hours of tomorrow morning, the person who decides the direction of the Fed has changed!

The Fed's "2024 debut" is approaching, investors are more eager to know "when the Fed will cut interest rates", and according to tradition, the Federal Open Market Committee (FOMC) will rotate its members this year, which means that the people who decide the future direction of monetary policy have changed.

The FOMC is composed of 12 members, of which 7 members of the Board of Governors have permanent voting rights during their term of office and are replaced by 11 local Fed chairs on an annual basis:

The fixed voters are: Fed Chair Powell (neutral), Fed Vice Chairs Jefferson (neutral) and Barr (neutral), Fed Governors Waller, Cook (dove), Kugler (dove), Bowman (hawkish), and New York Fed President Williams (neutral).

This year, Chicago Fed President Goolsbee (dove), Philadelphia Fed President Harker (dove), Minneapolis Fed President Kashkari (the new "Eagle King") and Dallas Fed President Logan (hawk) will be rotated.

At the same time, BofA noted in the report that Cleveland President Mester (hawkish), Richmond Fed President Barkin (hawkish), Atlanta Fed President Bostic (hawkish) and San Francisco Fed President Daly (neutral) became new voters.

Bank of America believes that judging from the recent remarks of Bostic, Mester and Daly, the FOMC may be more hawkish internally, but because the Fed tends to speak out unanimously and the internal "negative votes" are gradually decreasing, it is uncertain whether the hawkish stance will change after the rotation of the voting committee, and the FOMC "blood exchange" has little impact on the Fed.

The views of the four rotating voting committees are counted

First of all, from the most controversial Bostic.

Deutsche Bank economists believe that Bostic's stance is relatively dovish, while Bank of America believes that Bostic's stance is hawkish.

Bostic has said that the Fed cannot wait until inflation reaches 2% before cutting interest rates, otherwise inflation will "overshoot", but he also said that the Fed is expected to cut rates twice in the second half of 2024, and that it would be appropriate for the benchmark rate to fall to 4.75%-5% (which is less than the dot plot and market expectations).

He believes the Fed can achieve a soft landing because the Fed has a way to solve inflation without causing too much pain in the labor market. However, he also pointed out that there is still some way to go in the fight against inflation.

Both Mester and Barkin are seen as hawks, with Mester having a clearer hawkish stance.

In January this year, after the CPI in the United States rose more than expected in December, Mester poured cold water on the market's expectations of a rate cut by the Federal Reserve in March. She said:

"I think it's too early to cut rates in March and we need to see more evidence. The December CPI report only suggests that there is more work to be done, which will require a restrictive monetary policy. ”

Mester said at the end of last year that market expectations for interest rate cuts were "slightly ahead" of the Fed, and that the key to the next stage was how long monetary policy needed to remain tight.

Barkin also said earlier that the December CPI information would be of little help to the inflation path for Fed officials who are considering a possible start to cutting interest rates this year. Barkin reiterated that he is open to rate cuts, will not predict the March FOMC rate decision, and will closely monitor the January-March PCE inflation data.

Daly's stance has always been neutral.

Before the Fed's quiet period, Daly had said that the U.S. economy and monetary policy were in good shape, so the Fed could be patient and that cutting interest rates too quickly before inflation came back to the 2% target would hurt the economy.

Daly stressed that unlike last year's focus on fighting inflation, this year's focus is more on the Fed's other task – achieving maximum employment.

Therefore, some media analysts pointed out that the FOMC is shifting to a more balanced position, and some members who were originally hawkish and dove-biased are gradually leaning towards a neutral position. The Fed is likely to remain cautious until the inflation outlook changes further, which means that maintaining the status quo in the near term remains the best option.

The disappearing Fed "no" vote

Looking at the data, during Powell's nearly six years as Fed chairman, unity has become the norm, and the proportion of FOMC members who voted against has been declining, with only 2.6% of the total votes, the lowest since the Paul Volcker era (Fed chairman from 1979 to 1987).

Andrew Levin, a professor of economics at Dartmouth University and a former Federal Reserve official, said the FOMC now looks more like a corporate board than a public decision-making body.

Former St. Louis Fed President James Bullard (a big hawk) was one of the officials who voted against it several times during his tenure as a member of the FOMC voting committee. Groupthink, he said, can be a problem.

Bullard also pointed out that FOMC members who do not have a formal objection can actually express their views publicly in speeches or interviews. According to Fed data, Bullard had voted against in June 2013, September and June 2019, and March 2022.

At the same time, some analysts have pointed out that it is usually the rotating regional Fed chairs who vote against it, so when everyone in the permanent voting committee starts thinking in the same way, perhaps sooner or later the Fed will make a mistake.

The consensus is that the Fed will keep interest rates steady for the fourth time in a row tonight. However, the real focus will be on when the Fed will start its rate cut cycle. Judging from the minutes of the recent meeting itself, there has only been preliminary communication within the Fed about cutting interest rates, so the impact of the FOMC on the Fed's policy after the "blood exchange" may be answered by this meeting.