Today we have another installment in this column's continuing efforts to pay attention to non-Greenspan members of the Federal Open Market Committee. This is the group that meets regularly and announces its intentions with regard to the federal funds rate; that announcement generally gets a lot of attention. (Most recently, the FOMC cut rates by a quarter of a percentage point last week.) Minutes of these meetings are released a month or so after the fact and get some, but far less, attention.
In our last episode, we focused on Thomas Hoenig, who cast a dissenting vote at the May 15 FOMC meeting. Dissenting votes at FOMC meetings are not unheard of, but they are rare. (Hoenig's was the first since 1999.)
Late last week, minutes to the June 26-27 FOMC meeting were released. That meeting resulted in a statement indicating that the committee sought to lower rates by one-quarter of a percentage point and noting that "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." This last bit is what people are talking about when referring to the FOMC's "bias"—in this case, the phrasing suggests that the Fed has a bias toward cutting rates again.
For the second meeting in a row, there was a dissenting vote. According to those minutes,
All except one of the members accepted a proposal to retain the Committee's press statement that the risks would continue to be weighted toward economic weakness after today's easing move. The member who opposed additional policy easing expressed strong reservations about such a statement because in his view it likely would be interpreted as an intention to ease policy further, which was contrary to his own assessment that a more neutral outlook regarding the future course of policy was desirable.
This time the dissenter was William Poole. Like all the non-Greenspans, his is not a household name. Poole was appointed in 1998 to serve as president of the regional Fed bank that is based in St. Louis. (See that earlier column for more details on regional bank presidency terms and so on.) Prior to that he was on the faculty of Brown University, was an adviser to a couple of other Fed banks, and worked with the Brookings Institution and the Cato Institute, among other things. His career actually began at the Fed, whose staff he joined in 1964, working his way up to senior economist before heading for Brown. Like Hoenig, Poole is frequently described in press reports as an inflation hawk.
The minutes go on to note:
Mr. Poole dissented because he believed that FOMC actions this year had already established a highly stimulative monetary policy stance. … Economic forecasts were that the economy's growth would resume later this year and the fact that long-term interest rates had not declined since December also indicated that the market anticipated a revival of faster economic growth before long. Given the lags in monetary processes, he believed that adding further monetary policy stimulus raised an undue risk of fostering higher inflation in the future. Moreover, against this background, he was especially concerned that a statement that the Committee continued to view the balance of risks as weighted toward weakness would be read in the market as a sign that the Committee was likely to ease further in the near term. He thought future developments were equally likely to warrant an action in either direction, and he did not think the Committee should take a step that probably would cause expectations of further easing to become embedded in market interest rates.
This isn't so different from Hoenig's reasoning in May. At that meeting the minutes noted two other committee members expressing sympathy with Hoenig's views, and although they were not named, the Wall Street Journal suggests these two were Poole and Boston President Cathy Minehan. But no one joined Poole in his June dissent, and the minutes don't mention anyone chiming in to express sympathy with his views.
As noted, the most recent FOMC meeting resulted in another quarter-point cut and the reiteration of a bias toward cutting further. Did anyone object this time, or have all the members become more concerned about the failure so far of any rebound to materialize? We will, of course, have to wait another month or so for anything resembling an answer to that question.