Know Your FOMC Dissenter

As noted in last week’s column on Fed officials who happen not to be Alan Greenspan, dissenting votes in Federal Open Market Committee meetings are rare, particularly when compared with, say, Supreme Court votes. Unlike judicial bodies generally, the FOMC strives for consensus. So it’s worth following up to note that, late last week, the minutes of the FOMC’s May 15 meeting were released, and there was in fact a dissenting vote. The one voting member to oppose cutting the Fed funds rate by half a percentage point was Thomas Hoenig, who preferred a quarter-point move. This was the first dissenting vote since 1999.

So, who is Thomas Hoenig? I noted in passing last week that he’s the president of the Kansas City Fed and is one of the four regional Fed presidents who currently vote at FOMC meetings (the voting privilege rotates). Like most of the other non-Greenspans, he doesn’t get quite as much press attention as the Fed president, but the basic details, as they’ve been reported in short profiles and interviews here and there, are as follows.

Hoenig joined the Kansas City Fed in 1973 and finished his doctorate in economics (Iowa State) soon after that. He never left, working his way up to the top job in 1991. The president of a Fed district bank is appointed by that bank’s nine-member board of directors (and signed off on by the Fed governors in Washington), a setup that is, as others have noted, a step removed from the democratic process. There are, for instance, no Senate hearings involved in joining this particular club. (Fed governors are Senate-confirmed.) The 12 regional president jobs have concurrent terms—everyone is either reappointed or replaced every five years; as it happens, the current term finishes at the end of this year. Fed presidents can be subject to mandatory retirement at age 65, though there are exceptions, but in any case Hoenig is in his mid 50s.

That pretty much covers the highlights of the Hoenig bio. What’s his beef? According to those minutes, he “expressed a strong preference” for a quarter-point cut, and two other members—not named—”indicated that they could have accepted that more limited easing move.” Elsewhere, the minutes add three sentences summarizing Hoenig’s concerns. In a nutshell, the “rapid and aggressive” series of rate cuts the Fed has already introduced means that a “more cautious” action might have been more appropriate, to “limit the risks of an overly accommodative policy stance and rising inflation over time.” Hoenig has been fairly consistently described in the press as an inflation hawk. As recently as April he said, rather optimistically, that the U.S. economy’s annual growth rate could reach 3 percent by the end of 2001 “if all goes well.” (He also said that inflation was “generally contained” at the time.)

All this notwithstanding, the FOMC did cut rates by half a point in May; last week it eased again, but by only a quarter-point, and we probably won’t know whether Hoenig or anyone else dissented until the minutes for that meeting are released later this summer. Some market-wrap stories last week suggested that fears of a bickering FOMC helped make the market skittish. But there’s a huge amount of speculation built into that line of thinking: Even if the FOMC were truly and seriously divided, it’s unlikely that we’d know about it until well after the fact. And that, of course, is by design.