Turnover at the Federal Open Market Committee in the New Year will bring louder hawks into policy debates, and could mean a more aggressive but divided push for faster policy normalization than in previous years.
Among the new regional bank voting members later this month will be Cleveland Fed President Loretta Mester, who has tended to a more hawkish stance than the rest of the committee during her time as Cleveland president, but is probably the most likely regional bank president to play the consistent dissenting role that Neel Kashkari played this year (though she will likely do so in the more traditional, professorial central banking style than Kashkari's online confession essays at Medium). Mester dissented in favor of higher rates in 2016 when she was a voting member, and has made it clear she sees reasons for lifting rates steadily in 2018.
The rest of the incoming committee membership from the regional bank is a bit more unpredictable, however. The Atlanta Fed's president, Raphael Bostic, is starting his first year as a voting member on the FOMC, so it is hard to predict how willing to voice public disagreement he'll be. His speeches throughout the second half of last year, though, make it clear that he will favor easier policies and slower tightening of financial conditions. In his first speech at the bank, for example, he said economists probably don't fully understand the reasons for lower-then-targeted inflation and that policy then was in a good spot. More recently he suggested that three rate increases this year could be too swift of a pace for his tastes, which would be a slower tightening than other top Fed officials currently predict.
San Francisco President John Williams is also a traditionally more dove-ish policymaker who is likely to view issues similarly to Bostic. And while new Richmond Fed president Thomas Barkin will represent the regional bank with a history of inflation obsession, he is not an academic economist and may bring a more malleable worldview to the table than previous Richmond president Jeff Lacker, whose nightmares were haunted by the specter of hyperinflation.
While that means the rotating regional members are likely to be split on policy, the real potential transformation on the committee could come in the governors voting bloc. In recent years that group, led by Janet Yellen, has displayed an instinct to tighten rates cautiously.
But Chair-in-waiting Jerome Powell, a reliable consensus voter under Yellen, could choose to chart a different path now that he is the most influential voice at the central bank. Marvin Goodfriend, who President Trump has nominated to be a Fed governor, was a sharp critic of policy direction under Janet Yellen and Trump also has at least one more board position to fill. Another strong and well-respected hawkish voice could materially swing the balance of the committee's discussions and policy approach this year -- especially if that new member sees asset prices hitting all-time highs and an economy that continues to expand.