Losing the monetary-policy debate hasn’t settled the matter for some Federal Reserve regional bank presidents, who are taking their arguments directly to the public.
Charles Plosser of Philadelphia today became the latest president to publish an explanation for his dissent from a decision by the Federal Open Market Committee, joining colleagues from Boston, Minneapolis, Richmond and St. Louis who have done so in recent years.
Plosser, a consistent critic of the Fed’s easy-money policies, cast the lone “no” vote this week, objecting to the Fed’s statement that borrowing costs will probably stay low for a “considerable time” after the central bank ends its asset-purchase program. Plosser said the pledge is no longer appropriate with the Fed “very close to achieving” its goals for employment and inflation.
“It seems like now it’s in fashion to give more background when you dissent,” said Thomas Costerg, an economist at Standard Chartered Plc in New York. “Dissenting is a big deal, so it doesn’t surprise me that you would come up with a statement to explain it.”
This week’s FOMC statement gave a one-sentence explanation of Plosser’s dissent. His own statement ran to more than 600 words.
While such statements justify dissenting votes in detail, they fail to influence investors’ view of the path of interest rates, said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former Fed economist.
“What matters is what the FOMC decides,” Perli said. “Dissents, no matter how eloquent, are direct evidence that the FOMC has no intention of going in the direction advocated by the dissenters.”
Even though Plosser lost the debate, his view should put the majority on the defensive, said John Ryding, chief economist at RDQ Economics in New York and a former economist at the New York Fed.
“Plosser’s explanation of his dissent is exactly what is needed,” Ryding said. “He has laid out his arguments clearly. It is up to the other members of the FOMC to explain why data dependent policy has remained unchanged even as the data have changed.”
Minneapolis Fed President Narayana Kocherlakota was the first to issue a written explanation of a dissenting vote, in August 2011. He objected to the FOMC’s guidance that rates were likely to stay low “through-mid 2013,” which replaced a prior pledge to keep them low for an “extended period.”
While Plosser and the Dallas Fed’s Richard Fisher also dissented that time, they didn’t issue statements.
Kocherlakota, who added a video presentation describing his reasoning, said at the time that his statement served to further the Fed’s goal of explaining its actions more clearly.
“Transparency is an essential part of effective policy formation,” he said.
In December 2013, the Boston Fed’s Eric Rosengren said “further commentary” was “useful to illuminate my views and vote.”
Not all of the 12 regional presidents are jumping on the bandwagon.
Former Kansas City President Thomas Hoenig, whose eight straight dissents tied a record for most in a single year, didn’t issue statements. Neither did his successor, Esther George, who dissented seven times last year.
Stuart Weiner, a former Kansas City Fed economist, said the tendency toward greater public debate among policy makers risks confusing investors.
“It’s clear that most presidents are not shy about speaking frequently, and often taking positions different than the chair,” said Weiner, who is associate editor of the Journal of Financial Market Infrastructures and a consultant. While they “would argue it adds to the debate,” the conflict is “often disruptive and confusing.”