Back in December 2011, we previewed the rotation in the FOMC's voting block with "When Doves Laugh: 4 Weeks Until The Quiet Coup In The Fed Gives QE3 A Green Light ", a post whose summary was that as a bevy of new voting doves came in, it made QE3, then very much a taboo topic - because, you see, "the economy was improving on its own" - virtually inevitable (despite some angry comments from even our own readers). Naturally, as 2012 played out, we got not only QE3 but QE4EVA. So now what? Well, with the new year comes the now traditional new roster of voting regional Fed president members. And while the supremacy of the Bernanke core supermajority group of 8 permanent voters (especially with the three new hires) will never be in jeopardy, 4 new regional presidents join the core group of Bernanke doves. The new voting FOMC members: Evans, Rosengren, Bullard and George. They replace Pianalto, Lockhart, Williams and consummate critic and sole voice of reason and opposition at the Fed in 2011, Lacker. So how does the layout of the 2013 FOMC nest of hawks and doves look like? SocGen summarizes.
A quick glance above shows that on average, the new voting FOMC members are far more polarized than their predecessors with Evans once again reentering the voting race, arguably the biggest dove in the history of the Federal Reserve, and next to him will be Boston's Eric Rosengren, yet another consummate dove. On the other side we get James Bullard, an occasinal hawk, as well as new Kansas Fed president Esther George, a modest hawk.
Does this split mean anything material will change in the 2013 voting pattern at the Fed? Hardly. Here is SocGen's explanation:
One man, one vote, but some votes are worth more than others. As represented in the picture above (see left column), the annual rotation of voting members will see a replacement of 1 hawk and 3 doves with 2 hawks and 2 doves. It is tempting to conclude that this will change the bias, but we don’t think it will have much impact on FOMC decisions. Aside from the fact that moderate doves will be replaced with extreme doves (Evans and Rosengren); the hawkish side of the spectrum will see some softening as well. We may in fact see fewer dissents in 2013. Of the two incoming hawks, we don’t expect George to dissent and we are 50/50 on Bullard. And, even if both dissented, this would not alter the outcome. Recall that in 2011 we had three dissents, and it did not stop the Fed from launching operation twist and introducing calendar guidance. Ultimately, it is the votes of the Fed Governors that matter and the Governors tend to always vote with the Chairman and Vice Chair.
Sure enough, the voting FOMC members are merely the supporting cast of the top three: Ben, Janet and Daniel, and at the end of the day, it is always about Bernanke. So while the FOMC may get one more borderline hawk, it is getting two more far more vocal doves, which likely means that at the end of the day, there will be zero change in the Fed's posture in 2013, which at the end of the day is always about one simple thing: i) injecting reserves into dealers so they can use the cash to fund prop trading, and ii) to monetize the US deficit.
It also means that the 2013 run-rate of TSY and MBS monetization of $1 trillion will last not only through the end of the year, but almost certainly past year end 2014.
Everything else is smoke and mirrors.