Feb 25, 2022 - Economy & Business

Jerome Powell's math problem

Jerome Powell

Photo illustration: Shoshana Gordon/Axios; Photo: Susan Walsh/Pool/AFP via Getty Images

When the Federal Reserve chair speaks, the world listens, assuming his policy preferences will be enacted.

Yes, but: Through an unusual constellation of events, Jerome Powell faces extremely tight math in attaining a majority of the Fed's policy-setting committee for his preferred actions.

Why it matters: At a time of high inflation and geopolitical uncertainty, Powell's job will include managing tricky internal politics that tilt Fed policy in a more hawkish direction than he might prefer.

The situation results from many factors colliding: The Biden administration's sluggishness making Fed nominations, Senate Republicans' aggressive tactics to block one of the nominees, random chance around which regional Fed banks have a policy vote this year, and even the trading scandal involving Fed officials.

By the numbers: The monetary policy-setting Federal Open Market Committee currently has nine voting members, due to vacant Fed governor positions awaiting Senate confirmation.

  • Six of the nine appear to be more hawkish — favoring higher interest rates faster — than the leadership troika of Powell, governor Lael Brainard and New York Fed chief John Williams.

Counting the votes: Four regional bank presidents with votes this year have expressed views that are more hawkish than core Fed leadership: Jim Bullard of St. Louis, Esther George of Kansas City, Loretta Mester of Cleveland, and Patrick Harker of Philadelphia.

  • Harker, as it happens, only has a vote this year because the Boston Fed presidency is currently unoccupied after the trading scandal prompted an early retirement.
  • Then there are two Trump-appointed governors who appear to be on Powell's hawkish flank: Christopher Waller, a former close associate of Bullard, and Michelle Bowman, a bank regulator who this week called for "prompt and decisive action" to reduce inflation.

The math: If three of those six officials were to dissent, it would match the highest number in recent memory. If four dissent, it would be the most since 1983 and raise questions about Powell's level of control.

  • Bullard, George and Mester have all dissented in the past.
  • If five of the six disagree strongly enough with Powell's policy direction to vote against him, it would amount to a governance crisis at the world's most powerful central bank.

Yes, but: Powell has an adept political touch and has thus far been skilled at keeping his policy committee steered in the same direction, disagreements notwithstanding.

  • No Fed governor has dissented since 2005. In recent decades they've acted more as part of the chair's inner-circle.
  • The math should get simpler for Powell when one or more of Biden's nominees is confirmed, and when economist Susan Collins takes over as president of the Boston Fed on July 1, replacing Harker as a voter.

Late-breaking caveat: The follow-the-leader instinct is stronger at moments of crisis, so the Russian invasion of Ukraine could a make it easier for Powell to keep his colleagues on his side.

The bottom line: More so than usual, counting votes at the Fed will matter for the near-term path of policy.

Go deeper