January 30, 2008 / 10:58 PM / 11 years ago

FED FOCUS-Bernanke's age of dissent rolls on

CHICAGO, Jan 30 (Reuters) - The cavalcade of official dissents against Federal Reserve interest rate decisions rolls on, a trend some analysts feel undermines the bank’s ability to gain traction with its policy shifts.

Dallas Federal Reserve Bank President Richard Fisher dissented from Wednesday’s decision to lower benchmark lending rates by 50 basis points, a decision that came swiftly on the heels of an emergency cut of 75 basis points last week. Fisher wanted to leave rates unchanged.

“The dissenter ... preferred no change, suggesting that the debate was whether or not to cut rather than between 25 basis points and 50 basis points as many had speculated,” said economists at Goldman Sachs.

A reflection of the collegial leadership style of Chairman Ben Bernanke, the numerous dissents have fostered an impression that the Fed’s general is not entirely in control of his troops.

“Bernanke has given permission to dissent, and people are using that permission,” said Rich Berg, chief executive officer of Performance Trust Capital Partners in Chicago. “Bernanke is a consensus builder, not an autocrat.”

No more than one dissent has been made at any Fed meeting under Bernanke, but the frequency of such votes is thought to uncover deep divisions within the rate-setting Federal Open Mark Committee on the direction of policy at a time the Fed faces challenges on both the growth and inflation fronts.

“It was the fourth consecutive decision with a dissent, so the discussion was likely vigorous,” Gary Bigg, economist at Banc of America, said of Wednesday’s vote. “I believe the discussion will be fairly robust going forward.”

Some Fed watchers have criticized the central bank for providing mixed messages on policy as officials have aired divergent views — sometimes sounding dovish and hawkish on the same day.

The shark-infested economic waters that the Fed is now swimming in argue for clarity, many analysts contend, and policy-makers recently have started to deliver.

“Financial stress tends to create unity on the committee, but if markets become stable and the Fed can start looking at the real economy, some voters may come out of their shell,” said Michael Feroli, economist at JP Morgan Chase in New York.


Dissents were not unknown during the Alan Greenspan era at the Fed, but they became relatively rare in the final stages of that 18-year span, driven by the former chairman’s belief that unanimous decisions strengthened the Fed’s policy hand.

From 2002 to 2005, Greenspan saw just two dissents from regional bank presidents: one from San Francisco in 2003 and one from Dallas in 2002, both in favor of lower rates. Two dissents were also made by Fed board governors.

Even so, Greenspan faced more dissents at times of major policy inflection: the Kansas City Fed dissented twice and St. Louis once during the string of 2001 rate cuts, in each case in favor of tighter policy.

Bernanke has had no dissents from members of the Fed’s board since taking the reins on Feb. 1, 2006, but regional bank presidents have been another thing.

Inflation hawk Jeffrey Lacker, president of the Richmond Fed, famously dissented four straight times in favor of higher rates in late 2006.


In October 2007, Kansas City Fed President Thomas Hoenig argued against a rate cut, while in December Boston Fed President Eric Rosengren lobbied for a bigger reduction.

When the Fed made its surprise rate cut on Jan 22, St. Louis Fed President William Poole voted nay. Fisher’s dissent ran the streak to four.

Among the 2008 voters, New York Fed President Tim Geithner and Cleveland Fed President Sandra Pianalto have never dissented during their relatively brief tenures.

Philadelphia Fed President Charles Plosser voted for the first time on Wednesday since joining the Fed in 2006, and stayed with the majority. But he is seen as Lacker’s equal among Fed hawks.

Minneapolis Fed President Gary Stern, an elder statesman among the regional chiefs, strung together three hawkish dissents in 1996 but endorsed each decision in 1999, 2002 and 2005.

“If Fisher can get Stern or Plosser to come over to his side, it would be embarrassing for the committee ... if there’s an easing with two dissents,” said Feroli. (Additional reporting by Tamawa Kadoya in New York; Editing by Leslie Adler)

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