Two of Fed's Newest Faces to Join Rate-Setting Panel in 2018

By FeaturesDow Jones Newswires

Two of the newest Federal Reserve officials will step into the spotlight in 2018 when they assume voting seats for the first time on the central bank's interest-rate-setting committee, weighing how to keep a buoyant economy on an even keel in the new year.

One of them, McKinsey & Co. executive Thomas Barkin, starts his new job as Richmond Fed president Jan. 1. The other, former Obama administration housing official Raphael Bostic, became Atlanta Fed president in June.

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Not much is known publicly about their monetary policy leanings, so market participants will be parsing their words intensely for clues. Mr. Barkin doesn't have a public record of speeches or articles on economic matters such as labor markets, inflation dynamics and interest rates. Mr. Bostic's public remarks in recent months suggest he likely supported the Fed's decision to raise short-term interest rates earlier this month, but revealed no strong inclination to lift borrowing costs more or less aggressively in the future.

Gaining a vote on the rate-setting Federal Open Market Committee doesn't give the officials more influence on policy than their nonvoting colleagues, but it does provide a higher-profile platform for their views. Dissenters often draw more media and market attention than others and highlight the breadth of debate among the policy makers.

Messrs. Barkin and Bostic gain policy votes in 2018 through a complicated rotation system. The FOMC comprises up to 12 voting members -- all the members of the seven-seat, Washington-based board of governors and five of the 12 regional Fed bank presidents. The governors and New York Fed president always have FOMC seats. The other four slots rotate annually among the other 11 bank presidents. However, all the presidents attend and participate fully in the FOMC's meetings, whether or not they are voting members.

Minneapolis Fed President Neel Kashkari, an FOMC voter in 2017 who yields that status in 2018, said the vote didn't affect his job very much this past year.

"We all offer our economic thoughts and our policy recommendations," Mr. Kashkari said in an interview Dec. 18. "It's just at the very end of the meeting you -- you know, they call a vote. And so I didn't find the experience that different than my first year on the committee."

The other two presidents who become voters in 2018 are veteran Fed policy makers, the San Francisco Fed's John Williams and the Cleveland Fed's Loretta Mester. Both supported the central bank's three interest rate increases in 2017 and are likely to favor gradually lifting borrowing costs in the year ahead to prevent the economy from overheating.

Fed officials in December raised their benchmark short-term rate to a range between 1.25% and 1.5% and penciled in three quarter-percentage-point increases in 2018.

"We're ending the year with some very good momentum going into 2018," Mr. Williams said in an interview Dec. 15. "We are operating on all cylinders, which is, I think, a positive sign in terms of the sustainability of the expansion."

He also said that with inflation likely to rise toward the central bank's 2% target and the jobless rate likely to fall lower, "something like three rate increases next year, and two to three increases in 2019 -- that seems like a reasonable view" to hold.

The four who voted in 2017 and give up those seats in 2018 are Mr. Kashkari and the presidents of the Fed banks of Chicago, Dallas and Philadelphia.

Mr. Barkin and Mr. Bostic will be taking their FOMC seats at a time of unusual turnover among the central bank's leadership. President Donald Trump has nominated Fed governor Jerome Powell to succeed Chairwoman Janet Yellen when her term as chief expires in early February. Mr. Powell faces a smooth path to Senate confirmation, and Ms. Yellen plans to leave the Fed board of governors once the new Fed leader is sworn in.

Mr. Trump's first nominee to the board, Randal Quarles, took office in October. There are currently three vacancies on the board and Mr. Trump has nominated economist Marvin Goodfriend for one.

New York Fed President William Dudley, a close ally of Ms. Yellen, has said he would retire next year, and a successor hasn't been named.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

December 28, 2017 05:44 ET (10:44 GMT)