Last week, Chairman Ben Bernanke reassured traders that the Federal Reserve is ready to stay the course with its current quantitative easing (QE) program for as long as the economy needs to recover. According to the FOMC’s most recent monetary policy statement:
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”
This statement sent the bulls on Wall Street running to buy more shares, and the S&P 500 climbed and closed above 1,700 for the first time in history.
However, just as traders were starting to wonder just how high the market could go, the president of the Federal Reserve Bank of Dallas, Richard Fisher, stunned the market when he said the following:
“With the unemployment rate having come down to 7.4%, I would say that the [FOMC] is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.”
Later on in his presentation, to make sure he was not misunderstood, Fisher said, “I would have personally started dialing back some time ago.”
Click to Enlarge This statement hamstrung the bulls on Wall Street, and allowed the bears to bring the S&P 500 back down below 1,700.
Here’s the thing…the opinions of the various members of the FOMC do not carry the same weight because while each member of the FOMC attends each of the eight regularly-scheduled monetary policy meetings throughout the year, not all members are allowed to vote on monetary policy decisions.
The seven members of the Fed’s board of governors and the president of the Federal Reserve Bank of New York — because that’s where all of the Fed’s open market operations take place — always vote at FOMC meetings. The other 11 presidents of the various branches of the Fed are on a regular voting rotation that allows them to vote every third year, on average. Here’s how the voting currently breaks down:
Permanent Voting Members of the FOMC
- , Board of Governors, Chairman
- William C. Dudley, New York, Vice Chairman
- Elizabeth A. Duke, Board of Governors
- Jerome H. Powell, Board of Governors
- Sarah Bloom Raskin, Board of Governors
- Jeremy C. Stein, Board of Governors
- Daniel K. Tarullo, Board of Governors
- Janet L. Yellen, Board of Governors
Current Voting Members of the 2013 FOMC
- Eric S. Rosengren, Boston
- Charles L. Evans, Chicago
- Esther L. George, Kansas City
- James Bullard, St. Louis
Next year, the four Fed presidents who were able to vote this year will rotate out of that position and a new group of four Fed presidents will rotate in.
Soon-to-Be Voting Members of the 2014 FOMC
- Sandra Pianalto, Cleveland
- Richard Fisher, Dallas
- Charles Plosser, Philadelphia
- Narayana Kocherlakota, Minneapolis
One of these names should be familiar to you. The reason Fed watchers are paying so much attention to Richard Fisher is he will be a voting member of the committee starting next January.
The composition of the voting members of the FOMC is always important. Currently, the voting members of the Fed are quite dovish. Only one member voted against the current monetary policy during the FOMC’s last meeting. From the announcement:
“Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
Next year, however, that balance — especially with Chairman Bernanke poised to step down from his post — could change.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.