Fed Watch – A slightly less hawkish FOMC in 2019

by: Bill Diviney

  • Richard Clarida was confirmed by the Senate last week, and will take the influential Vice Chair role on the FOMC
  • Michelle Bowman is also likely to get approval from the Senate, but Marvin Goodfriend’s nomination now looks in doubt
  • All told, the composition of the FOMC looks marginally less hawkish in 2019-20
  • However – by our reckoning – the hawks will still outnumber doves
  • This supports our base case of a further four rate hikes from the Fed, taking the fed funds rate to 2.75-3.00% by next June
  • While a September hike is now almost fully priced, market conviction in further rate hikes has declined over the past month
180903-US-Fed-Watch.pdf (57 KB)

Updating our FOMC voter table

The FOMC has 12 members, which includes eight permanent voters and four rotating members from the regional Reserve Banks. The seven remaining Reserve Bank Presidents are full participants in the discussions over monetary policy, but they do not get a vote on policy decisions. Following the Senate confirmation of Richard Clarida as Fed Vice Chair last week, we have updated our FOMC voter table (see page 2). This year, the Committee has had a clear hawkish tilt. The Committee of 2019-20 is likely to be less hawkish, however, as more dovish members become voters and some hawks lose their voting rights.


In our table, we rank members from most hawkish (yellow) to most dovish (green) – a subjective judgement we make based on each member’s public commentary on monetary policy matters.

While Richard Clarida is now confirmed as Fed Vice Chair (see here for further details), President Trump’s other two board nominations continue to languish in congressional purgatory. We expect Michelle Bowman to ultimately get approval. However, Marvin Goodfriend – a hawk who performed poorly in confirmation hearings – now looks unlikely to clear the Senate, particularly if the Democrats manage to win seats in the upcoming midterm elections. As such, we no longer include him in our table. A further notable change regards Chicago Fed President Charles Evans, who is a voter next year. We had previously categorised him as a dove – for instance, he dissented against the December 2017 rate hike alongside Neel Kashkari. However, his more recent commentary is notably less dovish, for instance stating in early August that policy may need to turn ‘somewhat restrictive’ given the effects of fiscal stimulus (he furthermore cites half a percentage point above his neutral estimate of 2.75% as consistent with such a policy setting). As such, we have now categorised him as a centrist on the Committee.

We continue to expect the Fed to hike rates a further four times over the next 12 months. Based on our neutral rate assumption of c.2.5%, this would make the effective fed funds rate of 2.75-3.00% a modestly restrictive policy setting. While financial markets are now almost fully priced for a September hike, conviction in rate hikes is less strong further out, with c.65bp of the 100bp in tightening that we expect now priced in. The Bloomberg consensus of economists, in contrast, now projects a further five rate hikes rather than the four that we project.