Hawks hand over power and doves take the upper position! Will the Fed’s voting rights change next year？
Source: Cailian Association
Cailian News on December 22nd (edited by Xiaoxiang)After taking the fastest interest rate hike in more than 40 years this year, next year is actually a very delicate year for the Fed: on the one hand, the important task of the Fed to curb high inflation has not been completely completed, and the current interest rate hike cycle may take at least 2-3 interest rate hikes; On the other hand, the risk that the US economy will fall into recession next year is increasing day by day, and the Fed urgently needs to find a new balance in the face of the expectation of interest rate cuts that continue to breed in the market.
This also makes the personnel changes of the Federal Reserve next year, especially the change of the voting rights of the Federal Open Market Committee (FOMC), gradually become the focus of many people in the industry at the end of this year.
Since the interest rate meeting in July this year, FOMC has been in a rare "full" state for many years. Among the 12 voting committees in total, the chairman, vice-chairman and chairman of the Federal Reserve Bank of new york are the "Big Three", and five other Fed directors are permanent voting committees-they have the right to vote every year, while the remaining four voting committees rotate among the remaining 11 local Fed presidents.
thereforeNext year’s "change of blood" within the Federal Reserve will focus on the changes in the voting rights of these four regional Fed presidents, as follows:
Next year will beGet the right to voteGoolsbee, President of Chicago Fed; Huck, President of Philadelphia Fed; Logan, President of Dallas Fed; Kashkali, President of Minneapolis Fed.
Next year will beSurrender the right to voteDuring the year, the voting committees were: St. Louis Fed President Brad, Cleveland Fed President Meister, Kansas City Fed President George and Boston Fed President Collins.
Hawks hand over power and doves take the upper position?
Judging from the long-standing position of the above-mentioned officials, the extent of the change in voting rights next year is actually quite large in recent years. We can divide it in detail by the following picture of Bank of America’s Federal Reserve Eagle pigeon release:
First of all, among the four people who will get the right to vote next year, goolsbee will replace retired Evans as the chairman of the Chicago Fed in January next year. Evans is one of the most dovish officials in the Fed at present, and goolsbee is likely to inherit him.dovePosition. Please refer to our previous report for the relevant biographical information about goolsbee.
Huck and Logan are two relatively speaking presidents of the Federal Reserve.middle-of-the-roader(Of course, the degree of eagles and pigeons is still slightly different, please refer to the chart for details). Logan said in November that fighting inflation "has a long way to go". Huck said last month that he expected officials to slow down the rate hike and eventually keep it at a restrictive level for some time.
Of these four people, the mosthawksMaybe it’s Kashkali. Last month, he said that he didn’t believe that inflation had peaked, and that he "didn’t see many signs of economic cooling". However, Kashkali is a special person-he changed from the original "pigeon king" within the Federal Reserve to a hawkish official this year. It is unknown whether his position will be repeated when he really holds the right to vote in the future.
On the whole, among the four newly elected officials-all from the Eagle and Pigeon camp, the dovish atmosphere may be a little stronger. In fact, if we only look at the distribution of the new "upper" four voting committees, the position of the eagle pigeon may be at most four or six, which is not too unbalanced.
But,In fact, there is a contrast between "fear" in everything: officials who have newly won the right to vote may not be very pigeons, but there are too many hawks who have "handed over power".
As shown in the above picture,Among the four voting committees that will hand over their voting rights next year, Brad, Meister and George are all hawks within the Fed at present.Although Collins can be classified as a dove camp, on the whole, the momentum of the eagle pigeon camp will be extremely obvious next year!
Anna Wong, an economist who has studied the Fed, said, "Overall, in 2023, FOMC will join two new dove voting committees, which may further expand the influence of doves in the decision-making process. We believe that half of the 12 voting committees of the FOMC in 2023 may belong to doves, while this year there are only four. "
Will the Fed’s voting rights change?
Predictably, at the beginning of next year, the substantial impact of the above-mentioned changes in voting rights of the Federal Reserve is not expected to be obvious.Because at least on the issue of continuing to raise interest rates early next year, the differences between hawks and doves in the Fed are actually very small at present-everyone knows that the Fed has not completed the heavy responsibility of curbing high inflation.
The bitmap of the Federal Reserve in December shows that almost all officials believe that the target interest rate of the Federal Reserve will exceed 5% by the end of next year.
Roberto Perli, head of global policy research at Piper Sandler & Co．, an investment company, pointed out that "the new committee composition in 2023 seems to be more dovish than at present. However, the position of the Committee is still very unified. I think this indicates that no matter who has the right to vote, the threshold for the Fed to stop at a lower peak interest rate or cut interest rates in 2023 is very high. "
However, the problem is that the current situation will not be eternal.
As we mentioned after the Fed’s resolution last week, the Fed’s previous bitmap predictions have always been known for their changeability-next year will be no exception. At that time, the real test may come when inflation falls further and the pace of economic recession is approaching.
Here, we can actually share another "dry goods" chart with investors-historically, the Fed was not completely "aware of the recession". In the last four recession cycles, except for the special reasons of the epidemic in 2020, the Federal Reserve took interest rate cuts in advance a few months before the recession.
At present, the probability that the US economy will fall into recession next year is obviously not low. The latest monthly survey of economists by the media this month shows that most economists expect that rising interest rates will lead to economic recession, and the unemployment rate will rise from 3.7% last month to 4.9% in early 2024.
Once the economy shows signs of recession in the middle of next year or earlier, it is likely to attract the attention of dovish officials who are more concerned about the maximum employment goal, and then trigger their opposition to the austerity policy. Some people in the industry have predicted that although there are few objections from the Fed under Powell-there were only two dissenting voices in eight interest rate meetings this year, the complicated situation after the change of voting rights in 2023 may lead to more dissenting voices.
Perli pointed out, "If the unemployment rate climbs to a level higher than the natural unemployment rate next year, we may see the dissent of some dove officials; Of course, if inflation continues to remain high, then objections may not come soon, and there may not be more than one or two. Powell will still be able to manage FOMC very effectively. "
Judging from the latest pricing in the interest rate market, traders now expect that the Fed’s benchmark interest rate will peak at around 4.84% in the first half of next year, and then cut interest rates to around 4.37% before the end of the year. The market interest rate pricing is obviously more dovish than the Fed’s December bitmap. This also indicates thatThe market still expects that the Fed will never go all the way to the end next year …
