Infighting at the Fed?

Ben Bernanke

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When people think of “the Fed,” they might picture a monolithic building in Washington, D.C., or the serenely smiling, bearded face of its chairman, Ben Bernanke.

But the reality is, the group making decisions about raising or cutting rates or pumping money into the economy through so-called quantitative easing is made up of several highly educated, opinionated individuals with sometimes-conflicting ideologies, personalities and policy specialties.

Meet the Federal Open Market Committee.

The FOMC uses a variety of tools, including the adjustment of the key federal funds rate, to serve a dual mandate set forth in federal law to control inflation and maximize employment. While as chairman, Bernanke certainly takes the lead on deciding how to achieve those goals. But it’s not a foregone conclusion that he’ll get his way at every meeting. Before he can implement his plans, he has to get them approved by a majority of the FOMC at one of its regularly scheduled meetings.

In recent years, the Fed has used some unusual methods to nudge the economy forward in recent years. Those include massive purchases of government securities under the large-scale asset purchase plan dubbed quantitative easing, as well as a second round of buying called “QE2.” On these measures, FOMC members don’t always agree, and some FOMC members have stated publicly they won’t support Bernanke’s easy-money policies indefinitely.

To get an idea of where individual FOMC members stand on monetary policy and “QE2,” here’s a sampling of statements they’ve made in recent weeks.


Federal Open Market Committee

Ben Bernanke Chairman, Federal Reserve Board of Governors
“My colleagues and I have said that we will review the asset purchase program regularly in light of incoming information and will adjust it as needed to promote maximum employment and stable prices. In particular, it bears emphasizing that we have the necessary tools to smoothly and effectively exit from the asset purchase program at the appropriate time.”
— From prepared remarks on Feb. 3 at the National Press Club, Washington, D.C.
“The economy, though it does look to be growing more quickly, is still in a deep hole, (and) is still very far from where we’d like to be, and we need to manage policy — both monetary policy and fiscal policy — to try to put people back to work in a way that is consistent with stability, and in particular with continuing low inflation.”
— From Q&A on Feb. 3 at the National Press Club, Washington, D.C.
William Dudley
William Dudley Vice chairman, FOMC, and president of the Federal Reserve Bank of New York
“It is important to emphasize that we at the Federal Reserve have been expecting the economy to strengthen. We provided additional monetary policy stimulus via the asset purchase program to help ensure that the recovery regained momentum.
“A stronger recovery with more rapid progress toward our dual mandate objectives (of controlled inflation and full employment) is what we have been seeking. This is welcome and not a reason to reverse course.”
— From prepared remarks on April 1 at E-3 Summit of the Americas, San Juan, Puerto Rico.
Elizabeth A. Duke
Elizabeth A. Duke Member, Federal Reserve Board of Governors
“It would not be helpful if monetary policy reacted to every move in a volatile price.”
“The rate of inflation over the medium term is a key and important number for us to pay attention to. But when you look at things like gasoline prices, (they) are very volatile.”
— Q&A on April 14 at the International Factoring Association Conference in Washington, D.C. (Reuters).
Charles Evans
Charles Evans President of the Federal Reserve Bank of Chicago
“With regard to policy today, slow progress in closing resource gaps and underlying inflation trends that are too low lead me to conclude that substantial policy accommodation continues to be appropriate. This accommodative policy will foster a return of economic conditions consistent with our dual mandate.
“We are providing this accommodation in two ways. The first is our commitment to keep short-term nominal policy rates low for an extended period. The FOMC’s policy statements have been very clear on this and have included this characterization for the federal funds rate since March 2009.
“The second is our large-scale asset purchase program (LSAP) through which by June, we most likely will have purchased all told $2.35 trillion of long-term Treasury and GSE (government-sponsored enterprises) issues. These purchases are aimed at directly influencing longer-maturity interest rates. They also play an important and useful communications role; they signal our commitment to keep short-term rates low for an extended period of time.”
— Speech on March 28 at the BB&T Speaker Series on Capitalism, Darla Moore School of Business, University of South Carolina, in Columbia, S.C.
Richard W. Fisher
Richard W. Fisher President of the Federal Reserve Bank of Dallas
“In my view, no amount of further accommodation by the Fed would be wise — either by prolonging or tapering off the volume of purchases of Treasuries past June, or adding another tranche of large-scale asset purchases. Indeed, it may well be that we should consider curtailing what remains of ‘QE2.’
“Now, we at the Fed are nearing a tipping point. Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize our operations in a timely way.”
— Prepared remarks on April 8 before the Society of American Business Editors and Writers 2011 Annual Conference, Dallas.
Narayana Kocherlakota
Narayana Kocherlakota President of the Federal Reserve Bank of Minneapolis
“I’ll be watching core inflation pretty closely. Based on my forecast for core inflation, right now I think I could see it ticking upwards over the course of 2011. I wouldn’t foresee an extension of the LSAP (large-scale asset purchase program). Barring other eventualities, I wouldn’t see an extension of the LSAP being necessary in June.”
“We have a highly accommodative policy in place to deal with a large amount of slack but also to deal with where inflation was at the end of last year. If that inflationary factor changes, you have to change policy in response.”
— Excerpts from an interview in The Wall Street Journal on March 31.
Charles Plosser
Charles Plosser President of the Federal Reserve Bank of Philadelphia
“As to when to begin exiting from accommodative policy, I will continue to look at the data on output and employment growth, and on inflation and inflation expectations. Signs that inflation expectations are beginning to rise or that growth rates are accelerating significantly would suggest that it is time to begin taking our foot off the accelerator and start heading for the exit ramp.
“I would add that we should not be too sanguine in believing that such a time is a long way off or that the process will only be gradual. A stronger rebound in the economy or inflation than some now expect could require policy actions to be taken sooner and more aggressively than many observers seem to be anticipating.
“Allowing monetary policy to fall behind the curve can only result in greater inflation and more economic instability in the future.”
— Speech on April 1 at the Harrisburg Regional Chamber & Capital Regional Economic Development Corp., Harrisburg, Pa.
Sarah Bloom Raskin
Sarah Bloom Raskin Member of the Federal Reserve Board of Governors
“Although decisive action by policymakers has been successful in containing the crisis, we should not presume that the experience of the crisis is over. To be sure, the frantic days of rushed mergers of major financial institutions, emergency applications of nonbanks to become bank holding companies, and large-scale, targeted Federal Reserve programs to stabilize markets and restore the flow of credit are behind us.
“If we were doctors, we’d say that we had successfully treated the worst symptoms of the illness. But as we’ve learned from the other crises that are buffeting our world today, both natural and man-made, rescue and containment are only the first steps. Now we must address the aftershocks of the subprime mortgage meltdown — dislocation, joblessness and loss of confidence.”
— Speech on April 7 at the Federal Reserve Bank of New York Community Bankers Conference, New York City.
Daniel Tarullo
Daniel Tarullo Member of the Federal Reserve Board of Governors
“We’ve had a lot of accommodation over the last couple of years. We’ve had two large-scale asset purchase programs and a zero interest-rate environment. So I don’t think there’s any question we’ve done a lot, and I think the record is quite clear that what we’ve done had an important effect on the U.S. along the way on several counts.
“Having said that, I try to and will continue today to make it a policy of not prejudging what my view of a particular monetary policy action would be at any given moment. I think one does have to approach each FOMC meeting as one in which one looks at the data and tries to make an evaluation of what’s going to be happening in the medium term, so I’m not going to address that question.
“All I have said before, which I’ll repeat now, is that with respect to the $600 billion large-scale, asset policy program put in place in November, I don’t see any need to either terminate it prematurely or to increase it during its pendency — both of which have been articulated as options in our statements along the way. I don’t see a need at this juncture to do either one of those.”
— Excerpt from a panel discussion on April 14 at a C-Span forum at the Newseum in Washington, D.C.
Janet Yellen
Janet Yellen Vice chairman, Federal Reserve Board of Governors
“The Committee initiated a second round of Treasury purchases last November and has indicated that it intends to complete those purchases by the end of June. My reading of the evidence is that these securities purchases have proven effective in easing financial conditions, thereby promoting a stronger pace of economic recovery and checking undesirable, disinflationary pressures.
“I believe this accommodative policy stance is still appropriate because unemployment remains elevated, longer-run inflation expectations remain well-anchored, and measures of underlying inflation are somewhat low relative to the rate of 2 percent or a bit less that committee participants judged to be consistent over the longer term with our statutory mandate.
“However, there can be no question that sometime down the road, as the recovery gathers steam, it will become necessary for the FOMC to withdraw the monetary policy accommodation we have put in place. That process will involve both raising the target federal funds rate over time and gradually normalizing the size and composition of our security holdings.
“Importantly, we are confident that we have the tools in place to withdraw monetary stimulus, and we are prepared to use those tools when the right time comes.”
— Speech on April 11 at the Economic Club of New York City.