In terms of influence over financial markets, no one has more sway than the US Federal Reserve.
What it says and does impacts assets prices far and wide, carrying the ability to change the mindset of investors in an instant.
Given the power it posses, it’s always good to know what it may do in the future, and if you get ahead of the investment curve before the masses, it will almost certainly pay handsome dividends.
With this in mind, Sean Callow, senior currency strategist at Westpac, has been running his ruler over which members of the Fed’s FOMC will vote on interest rates next year, breaking down the list into three distinct categories: the doves, the hawks and those who are seen as policy centrists.
The doves are those who favour easier monetary policy while the hawks are the opposite.
This graphic from Callow shows how the composition between the doves and hawks will change in the next three years. Those on the left of the graphic are permanent voting members while those on the right rotate between being voters and non-voters between years.
Based on Callow’s assessment of prior actions, the FOMC voting panel looks set to become slightly more hawkish in 2018 with Charles Evans and Neel Kashkari — both noted policy doves — dropping out of the voting group, replaced by two policy centrists in John Williams and Charles Evans.
Loretta Mester, regarded as a policy hawk, will also join the list of voters.
Despite the hawkish tilt in the FOMC power brokers, there will be added uncertainty next year on several fronts.
For one, Janet Yellen will end her term as Fed chair in February next year, set to be replaced by Jerome “Jay” Powell who US President Donald Trump nominated for the position last week.
In Callow’s opinion, and many others, Yellen is unlikely to stick around even though her term as Fed governor is not scheduled to end until 2024.
Bill Dudley, New York Fed President and permanent voting member, has also said that he intends to retire mid-next year.
The FOMC also has no Vice Chair at present, and two vacancies for governors. Meanwhile there’s also a vacancy for President at the Richmond Fed.
With the FOMC running a little thin on troops, the lean towards the hawkish side of the policy spectrum could easily swing back the other direction depending on who fills the vacant positions.
It’s a safe bet that markets will be watching closely as to who will fill the void.