This guest commentary was written by Chief Market Strategist Mike O'Rourke of JonesTrading.
It appears a rebellion may be occurring inside the Eccles building that houses the Federal Reserve’s Board of Governors (FRB).
Suddenly, members of the Board of Governors are staking out territory that is very different from Chairman Powell's. It is as if the writing is on the wall that institution may receive new leadership.
The FOMC is composed of twelve members. The Chairman and the 6 other Federal Reserve Board Governors along with the NY Fed President are permanent members. Then 4 other seats are given on an annual rotating basis to the Presidents of the 11 other Fed districts outside of New York.
Obviously, the FOMC is stacked with Governors who work in close proximity to the Chairman in Washington DC as permanent members, essentially providing a built in power base. Typically, most policy dissent or breaks from the party line emanates from 1 or 2 regional Federal Reserve Bank Presidents.
Therefore, even if those Presidents are FOMC voters, they don't carry much sway since the Governors are typically aligned with the Chairman. That has been especially true much of the past 13 years due to the crisis nature of the economy.
Bloomberg reported that Governor Brainard is distancing herself from Chairman Powell preferring the use of macroprudential tools in the current environment.
Today, comments that Governor Christopher Waller made on CNBC radically diverged from the messaging Chairman Powell has pursued over the past year.
Waller is the newest member of the Board of Governors after joining in December of last year. Prior to that, Waller spent a decade as the Director of Research at the St. Louis Fed. During the CNBC interview, Waller stated:
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"Given my outlook which is very optimistic for the economy, as I said if the job reports come in as I think they are going to in the next two reports, then in my view with tapering we should go early and go fast in order to make sure we're in position to raise rates in 2022, if we have to. I am not saying we would, but if we wanted to we would have to have some policy space by the end of the year.... I would easily envision that if the numbers come in with 800,000 to 1 million jobs the next two reports, you could taper in October. You don't have to wait until January. And fast, meaning a faster pace than we had in the last tapering episode..." |
The stage is set, there will be two employment reports between now and the next FOMC meeting scheduled for September 22nd.
Waller's view is certainly at odds with that of Chairman Powell.
Without providing details, the Chairman has repeatedly ambiguously stated that "substantial further progress" from the December 2020 employment levels needs to be made before tapering commences.
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Waller’s potential “go early and go fast” is in direct opposition another recurring phrase from the Chairman is "So, we will very, very gradually, over time, and with great transparency, when the economy has all but fully recovered -- we will be pulling back the support that we provided during emergency times." |
If more FRB Governors develop an independent streak, the next 6 weeks will prove interesting.
EDITOR'S NOTE
This is a Hedgeye Guest Contributor piece written by Mike O'Rourke, Chief Market Strategist of JonesTrading, where he advises institutional investors on market developments. He publishes "The Closing Print" on a daily basis in which his primary focus is identifying short term catalysts that drive daily trading activity while addressing how they fit into the “big picture.” This piece does not necessarily reflect the opinion of Hedgeye.
