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The Fed’s Three-Meeting Ceasefire May Soon End

Richmond Federal Reserve Bank President Jeffrey Lacker could dissent if the Fed doesn’t raise rates next week.
KEVIN LAMARQUE/REUTERS

The Federal Reserve’s longest period of public harmony in four years could come to an end next week.

The last three statements from the policy-setting Federal Open Market Committee–issued on Jan. 28, March 18 and April 29–all were unanimous. The Fed hadn’t gone more than two meetings in a row without a dissenting vote since the first four meetings of 2011, according to a tally by Wrightson ICAP.

That’s not to say Fed officials were deeply divided last December and closed ranks in January. It’s more a quirk of the calendar. All Fed governors and regional bank presidents participate in the FOMC’s closed-door discussions. But four of the voting seats rotate among 11 regional reserve bank presidents, with permanent votes for the New York Fed’s president and the five Washington-based Fed governors. (Two additional seats on the Board of Governors are vacant.)

The Fed tends to operate by consensus with the chair, but dissenting votes offer an opportunity for officials to signal displeasure. Almost all dissents over the last two decades have come from regional presidents rather than governors, according to a St. Louis Fed analysis, and such dissents became more common during and after the financial crisis as the Fed launched aggressive efforts to stimulate the U.S. economy.

The voting slate in 2014 included three frequent dissenters: Minneapolis Fed President Narayana Kocherlakota, now-retired Dallas Fed President Richard Fisher and also-since-retired Philadelphia Fed President Charles Plosser. All three dissented at various points last year; in December, all three dissented at once.

The 2015 voting crew, on the other hand, has seemed more willing to vote with Chairwoman Janet Yellen. Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams have never dissented, according to Wrightson, and Chicago Fed President Charles Evans has only dissented a couple of times since taking office in September 2007. Richmond Fed President Jeffrey Lacker dissented at every meeting in 2012 but has gone with the majority so far this year.

But the last three meetings may prove to be the calm before the storm, and Ms. Yellen might not find consensus easy to maintain as the Fed faces critical decisions in the coming months. The policy statement due out June 17, at the close of next week’s two-day meeting, could mark the end of the ceasefire.

The Fed this spring opened the door to an increase in the benchmark federal funds rate from the near-zero level where it has been pinned since the end of 2008. A recent stretch of weak economic data has reduced the odds of a June rate increase, but it remains a possibility.

Mr. Lacker could dissent if the Fed doesn’t raise rates next week. He said last month he hadn’t decided if he’d vote for a rate increase at the upcoming meeting, but he previously signaled he favored a move at the June meeting.

“I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting,” Mr. Lacker said in April.

Mr. Evans, on the other hand, could dissent if the Fed does raise rates. He said last week he doesn’t think the Fed should act until 2016.

“The hurdle is pretty high for raising rates at the moment,” Mr. Evans said.

Related reading:

Fed’s Jeffrey Lacker Has a Kumbaya Moment

Fed’s Policy-Setters Likely to Be More United

Fed Gets Rare Hat Trick of Dissent

Fed’s Axis of Opposition Shifts from Hawks to Doves

Even if Fed’s Fisher and Plosser Dissent Again, They Won’t Catch Up To Henry Wallich

Test for Federal Reserve’s Next Chief: Quelling Dissent

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