Everyone expects QE to commence at the upcoming November meet, but what about beyond that?
Things may be tougher on the Chairman.
Remember, the composition of the (voting) Fed changes each year, and by Mike O’Rourke’s reckoning, it’s about to go from dovish to hawkish:
Charles Plosser of the Philly Fed and Richard Fisher of the Dallas Fed haves clearly come out against QE2 right now. Similarly Narayana Kocherlakota of the Minneapolis Fed said he did expect much benefit from another round of quantitative easing. All three gentleman are non-voters this year, but they become voters next year. The final non-voter this year who also will vote next year is Chicago President Charles Evans who indicated he would support QE2. This is getting interesting. When the rotation occurs at the start of 2011 the FOMC will lose 3 moderate/dovish voters (Rosengren, Pianalto and Bullard) and one hawk (Hoenig). They will be replaced with what looks like 3 hawks (Plosser, Fisher and Kocherlakota) and one dove (Evans). The Governors and Dudley would all side with Bernanke on a dovish stance. New Federal Reserve Board Vice-Chair Janet Yellen is also dove. There is no question the dovish view will prevail on the FOMC, but it will be hard to appear unified with so much potential opposition. Now there are only two meetings left in 2010, and one of them starts on election day. So if the FOMC wants to start QE2 and be limited to one dissent, they need to do it quickly.
In the end, Bernanke will most likely be able to get any policy he wants. But that’s only part of the issue. The appearance of of a unified front — without investors getting to see rational objections in the minutes, etc. will be impossible.
It’s been a while since the Fed was really a “friend” to the market.