The big question for U.S. monetary policy in 2012 is whether the Federal Reserve will ease further, after implementing Operation Twist in 2011.
The main determinant of Fed policy will be the economy, of course. It ended the year with some strength. The unemployment rate fell to 8.6 percent in November, and even in the weak third quarter, the GDP grew 1.8 percent.
To be sure, many experts expect the economy slow down this year. If it does, the composition of the Fed’s policymaking Federal Open Market Committee (FOMC) could play a large role in determining the central bank’s course of action.
The FOMC includes the seven Fed board members, the New York Fed president and four of the 11 remaining regional Fed presidents on a rotating basis.
The four presidents rotating out of the FOMC this year include the three most hawkish members: Narayana Kocherlakota of Minneapolis, Richard Fisher of Dallas and Charles Plosser of Philadelphia, The Wall Street Journal reports. All four voted against Operation Twist.
The newbies include John Williams of the San Francisco Fed, Cleveland’s Sandra Pianalto, and Dennis Lockhart of Atlanta. They’re all seen as more dovish than the departed.
Still, John Donaldson, director of fixed income at Haverford Trust, doesn’t anticipate large-scale quantitative easing by the Fed this year.
“We would expect to see perhaps some coordinated efforts between the Fed and other central bank to ease any strains on the system,” he tells Bloomberg.
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