The Return of FOMC Dissent! (Almost)

On Sept. 10, I was working on the latest installment in this column’s almost completely unacclaimed series dealing with members of the Federal Open Market Committee who happen not to be Alan Greenspan. The next morning, of course, I set that item aside. Recently, however, we got evidence of the first episode of borderline FOMC dissent in the post-Sept. 11 era. So it’s time for an update on the doings of the non-Greenspans.

Let’s recap the highlights of this curiously uncelebrated exercise. In a June column, we met the entire non-Greenspan gang. In July we looked at the FOMC member who had cast that body’s first dissenting vote since 1999. (At the May 15 meeting—the release of meeting minutes is always delayed by several weeks—Thomas Hoenig favored a quarter-point cut in the federal funds rate, rather than the half-point cut that the others voted for.) In late August, we covered another dissent, this time from William Poole. In that instance (it was the June meeting) all the FOMC members agreed on a quarter-point decrease, but Poole disagreed with the others on keeping a “bias” toward additional cuts. The minutes indicated that he believed “a more neutral outlook regarding the future course of policy was desirable.”

In early September—when minutes from the August meeting had not yet been released—I was looking into the latest public statements by various FOMC members that might give a clue about further dissension, or at least about the body’s general thinking. Speaking at a conference on Sept. 10, Poole opined that the United States had an “excellent chance” of avoiding an actual decline in GDP, and thus an actual recession. Thus, he further asserted, “the central bank ought not to pursue the goal of stabilizing economic activity so aggressively that it runs any substantial risk of compromising the goal of low inflation.” Hoenig, speaking at a different conference that day, offered his view that the American economy would likely improve through the end of this year and into next. Did this mean, given the Fed’s still-pessimistic bias, that one or both of these non-Greenspans had dissented in August and might do so again in September?

Well, that question, along with all prior prognostication about the economy, became moot on Sept. 11. (But for the record, my speculation would have been wrong—the August vote was unanimously in favor of yet another quarter-point cut, which at the time brought the fed funds rate to 3.5 percent.)

Since then, with little fear of inflation lingering, the fed funds rate has been cut even deeper. Half-point cuts—one at an unscheduled meeting shortly after the attacks, the other in the regular meeting in October—sailed through without dissent. In November the FOMC cut yet another half-point, and this month an additional quarter-point. We don’t know the details of the December meeting, but it turns out that in November, while the vote was unanimous, the committee’s thinking was not completely harmonious.

According to the minutes, three committee members “favored a smaller move” (meaning a quarter-point cut) on the theory that “policy was already accommodative.” The half-point move, considered against the already deep cuts and the reiteration of a bias toward lowering the fed funds rate even further, might “lead markets to build in inappropriate expectations of even more monetary stimulus.” Most members, though, wanted the bigger move in view of “the absence of evidence that the economy was beginning to stabilize.”

We don’t know which members disagreed, and what you’ve just read is pretty much all we know about their thinking. Nevertheless, it continues to be the belief of this inexplicably unballyhooed series that it’s worth remembering that the FOMC, while highly consensus-driven, is a deliberative body and that there’s value in trying to figure out what the deliberations consist of.

In a final bit of non-Greenspan news, two new members have joined the Fed’s Board of Governors (and thus the FOMC) recently. Susan Schmidt Bies and Mark W. Olson took office on Dec. 7. There will be more on these new non-Greenspans in a future, and almost certainly unheralded, installment of this column.