Let’s look at the FOMC scorecard and see what it can tell us about future Fed policy.
Right now there are two vacancies on the board of governors. This means that there are only five governors on the FOMC: Janet Yellen, Stanley Fischer, Lael Brainard, Jay Powell and Dan Tarullo.
The other five seats are taken up by the following regional reserve bank presidents: Bill Dudley (New York), Charles Evans (Chicago), Dennis Lockhart (Atlanta), John Williams (San Francisco) and Jeffrey Lacker (Richmond).
For all practical purposes, the center of gravity comes down to Yellen, Fischer and Dudley. They are the “Big Three.”
The other governors (Brainard, Tarullo and Powell) are relatively new. Jay Powell has been relatively quiet on monetary policy. Lael Brainard and Dan Tarullo shocked markets this week by breaking with Janet Yellen.
Among the regional reserve bank presidents, Evans is an outspoken dove and Lacker is an outspoken hawk. They cancel each other out.
Lockhart and Williams are both “moderates” who will also go along with Chair Yellen.
This lineup changes again next month.
Evans, Lockhart, Williams and Lacker will go off the FOMC at that point. They will be replaced by Loretta Mester (Cleveland), Eric Rosengren (Boston), James Bullard (St. Louis) and Esther George (Kansas City).
Once again, the regional reserve bank presidents are split. Mester, George and Bullard are all hawks, while Rosengren is a dove. However, Rosengren is not as outspoken and does not have the intellectual firepower that Evans brought to the debate this year.
The line-up is changing but the confusion continues. The governors are more dovish (because of the Brainard and Tarullo revolt against Yellen). The regional reserve bank presidents are more hawkish (because Evans is leaving and three hawks are joining). It’s a close call, but overall the FOMC looks slightly more hawkish beginning in 2016.
But only slightly. The entire FOMC, governors and presidents, is “data dependent.” Whatever their biases and previously stated views, they will carefully weigh the data and trends at each FOMC meeting. The FOMC will take the process one meeting and one data point at a time.
The next two FOMC meetings are Jan. 27-28 and Mar. 17-18. If there is another rate increase, it is likely to have devastating effects on emerging markets and lead to increased tensions in the currency wars and a further correction in the U.S. stock market.
It is possible that the Fed will raise rates at these meetings. It depends on if there is any strength in the data.
Bottom line: My forecast is that the economic data will remain weak and the Fed’s next move will be toward easing, probably by mid-2016. If the data are stronger than I expect, the Fed will raise rates further.
tl;dr - 2016 FOMC voting members will be (more) biased towards raising rates. Economic data might not allow it though.