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Credit Suisse, US Economics Digest, Oct 11, 2013. "The 2014 FOMC: A New Cast of Characters".

Credit Suisse, US Economics Digest, Oct 11, 2013. "The 2014 FOMC: A New Cast of Characters".

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Published by Glenn Viklund
 President Obama met market expectations this week by nominating Fed Vice Chair Janet Yellen to succeed Chairman Ben Bernanke. Assuming Yellen is confirmed by the Senate, she will begin a four-year term as Chair of the
Federal Reserve on February 1, 2014.
 President Obama met market expectations this week by nominating Fed Vice Chair Janet Yellen to succeed Chairman Ben Bernanke. Assuming Yellen is confirmed by the Senate, she will begin a four-year term as Chair of the
Federal Reserve on February 1, 2014.

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Published by: Glenn Viklund on Oct 16, 2013
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12/06/2013

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 ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHERIMPORTANT DISCLOSURES, PLEASE REFER TOhttps://firesearchdisclosure.credit-suisse.com.
 
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION
 
Client-Driven Solutions, Insights, and Access
 
US Economics Digest
The 2014 FOMC: A New Cast of Characters
 
President Obama met market expectations this week by nominating Fed ViceChair Janet Yellen to succeed Chairman Ben Bernanke. Assuming Yellen isconfirmed by the Senate, she will begin a four-year term as Chair of theFederal Reserve on February 1, 2014.
 
This transition in leadership is but one of several changes to the FederalReserve that we will see in 2014. Within the next few months, the compositionof the Federal Open Market Committee is likely to look very different than itdoes today.
We already know of three imminent vacancies on the seven-member FedBoard of Governors and the pending retirement of one Fed district bankpresident. More vacancies are possible as 2014 progresses.
These changes all come against the backdrop of the annual rotation of districtbank presidents into voting seats on the FOMC. The 2014 bank presidentvoting contingent is likely to be more hawkish than it has been this year.
In another change, the Dodd-Frank financial reform legislation requires that asecond Fed Vice Chair be named, in addition to the individual who eventually
assumes Yellen’s current role. The responsibility of the second Vice Chair will
be to focus on issues of bank supervision.
In this research note, we discuss the above changes in turn. We also provideour hawk/dove scale from September 24, presenting our views on the policypredispositions of officials on the Federal Open Market Committee.
Exhibit 1: The Federal Open Market Committee in 2014
Credit Suisse forecasts
Board of Governors
*
District Bank Presidents
Janet Yellen, Fed ChairmanBoston (Eric Rosengren)Vacant, Fed Vice ChairmanNew York (William Dudley), FOMC Vice Chair*Daniel Tarullo, Fed Vice Chairman for SupervisionPhiladelphia (Charles Plosser)*Jerome Powell (term expires 1/31/14)Cleveland (Sandra Pianalto's successor)*Jeremy Stein (may return to Harvard)Richmond (Jeffrey Lacker)VacantAtlanta (Dennis Lockhart)VacantChicago (Charles Evans)St. Louis (James Bullard)Minneapolis (Narayana Kocherlakota)*Kansas City (Esther George)Dallas (Richard Fisher)*San Francisco (John Williams)
 
Source: Federal Reserve, Credit Suisse * = Voting member ini 2014
Research Analysts
Neal Soss212 325 3335
 neal.soss@credit-suisse.com
Dana Saporta212 538 3163
 dana.saporta@credit-suisse.com
Jill Brown212 325 1578
  jill.brown@credit-suisse.com
11 October 2013
Economics Research
http://www.credit-suisse.com/researchandanalytics
 
 
 
The 2014 FOMC: A New Cast of Characters
President Obama met market expectations this week by nominating Fed Vice Chair JanetYellen to succeed Chairman Ben Bernanke. Assuming Yellen is confirmed by the Senate,she will begin a four-year term as Chair of the Federal Reserve on February 1, 2014.This transition in leadership is but one of several changes to the Federal Reserve that wewill see in 2014. Within the next few months, the composition of the Federal Open MarketCommittee is likely to look very different than it does today.We already know of three imminent vacancies on the seven-member Fed Board of Governors and the pending retirement of one Fed district bank president. More vacanciesare possible as 2014 progresses. These changes all come against the backdrop of theannual rotation of district bank presidents into voting seats on the FOMC.In another change, the Dodd-Frank financial reform legislation requires that a second FedVice Chair be named, in addition to the individual who eventually assumes Yell
en’
s currentrole. The responsibility of the second Vice Chair will be to focus on issues of financialsupervision.Below we consider each of these changes in turn.
An Historic Appointment at a Critical Time
It’s official, if not surprising.
The nomination of Janet Yellen as Fed Chair came as a relief to markets that have been digesting a stream of bad news otherwise, mainly concerningfiscal gridlock in DC.If confirmed, Dr. Yellen will be the first woman to serve as Chairman in the 100-year history of the Federal Reserve System. And she will be the first Vice Chair of the Fed
Board to be promoted to the Chairman’s seat. Also, she would be the first Democrat tohead the Fed since Paul Volcker’s chairmanship (1979
-87).
Exhibit 2: A Fed Chairman Chronology, 1914-Present
Term as Chairman of the Federal Reserve
Chair Name From Until
Charles S. Hamlin August 10, 1914 August 19, 1916William P. G. Harding August 10, 1916 August 9, 1922Daniel R. Crissinger May 1, 1923 September 15, 1927Roy A. Young October 4, 1927 August 31, 1930Eugene Meyer September 16, 1930 May 10, 1933Eugene R. Black May 19, 1933 August 15, 1934Marriner S. Eccles November 15, 1934 January 31, 1948Thomas B. McCabe April 15, 1948 March 31, 1951William McChesney Martin, Jr. April 2, 1951 January 31, 1970 Arthur F. Burns February 1, 1970 January 31, 1978G. William Miller March 8, 1978 August 6, 1979Paul A. Volcker August 6, 1979 August 11, 1987 Alan Greenspan August 11, 1987 January 31, 2006Ben Bernanke February 1, 2006 January 31, 2014
Janet Yellen (nominated) February 1, 2014 NA
Source: Federal Reserve, Credit Suisse
The next step is for Yellen to testify at a confirmation hearing before the Senate BankingCommittee. (Currently, the Committee is comprised of 12 Democrats and 10 Republicans.)The Committee will then take one of four steps: report the nomination to the Senatefavorably, unfavorably, without recommendation, or it may choose to take no action. Assuming the Banking Committee approves Yellen, then the vote goes to the full Senate.
 
 
The Senate is composed of 52 Democrats, 2 Independents (who caucus with theDemocrats) and 46 Republicans. A simple majority is needed to confirm a presidentialnominee, but 60 votes are needed to close the debate on the nomination. Our expectationis that Yellen will be confirmed, but not without dissension from those Republicans whoare concerned that she is too dovish.The transition from the Bernanke Fed to the Yellen Fed likely will be a smooth one. AnFOMC veteran, Yellen served as a governor from 1994 to 1997, as president of the SanFrancisco Fed from 2004 to 2010, and as Fed Vice Chair since October 2010.
Yellen, also an academic, could be expected to largely continue Bernanke’s efforts to
boo
st growth and employment by utilizing the Fed’s balance sheet and communications.
She is widely respected within the Federal Reserve System.
1
Her rhetoric occasionally
comes across as more dovish than Bernanke’s, and it is reasonable to wonder whether, as
Chair, she would tolerate a slightly higher rate of inflation in pursuit of job growth. Thatsaid,
Yellen has not wavered in her public support for the Fed’s 2% inflation target.
 We think Yellen was among those arguing against tapering at the September 17-18 FOMCmeeting, and she is probably nowhere close to contemplating actually tightening policy viarate hikes. However, there is precedent (albeit in the mid 1990s) for her sounding hawkishwarnings when she is uncomfortable with the inflation outlook. We believe Yellen will becareful not to remove accommodation prematurely, but it would be a mistake to think of her views as being static.Some have asked whether Yellen or Bernanke will take the lead role at the next threeFOMC meetings. In practice, we don
’t think it would matter, as the resultant policy would
probably be the same either way. That said, Yellen certainly should not be seen asassuming a chairman-type role before her Senate confirmation, which may not come untilafter the October 29-30 meeting and possibly after the December 17-18 meeting. At its first policy meeting each year, the FOMC names an FOMC Chairman (almost alwaysthe Fed Chairman) and an FOMC Vice Chairman (almost always the NY Fed President).It is possible that Bernanke will be named FOMC Chairman through January 31, and thenYellen will be named FOMC Chairman for the balance of the year. Alternatively, even if she is not yet sworn in, the FOMC in January may name Yellen theFOMC Chairman for the full year. In that case, she would call the shots at the Committeemeeting on January 28-29. A Yellen chairmanship would leave open her Vice Chair seat on the Board of Governors. Another seat was vacated when Governor Duke left the Fed at the end of August. AndGovernor Raskin, who abstained from the September 18 FOMC vote, is about to leave theFed to join the Treasury. So, that makes three of seven slots to be filled (Exhibit 3).
What’s more, Fed Governor Powell’s term expires on January 31, 2014. He probably will
be encouraged to stay on indefinitely, until a replacement is found. (That is what Governor Duke did, as her term expired back in 2012.) And our understanding is that Fed Governor Stein risks losing his tenure at Harvard if he does not return by May. Suffice it to say, theFed Board of Governors may look very different by next spring.
1
In his book, "
 A Term at the Fed: An Insider's View 
," former Fed Governor Laurence Meyer singles out Janet Yellen as one of thefew FOMC participants who had the power to persuade then-Chairman Alan Greenspan.

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