Kremlinology? Call It Fed-Res-ology:
Reading the Tea Leaves of the Federal Reserve Board

Gonzalo Lira

Time was, no one gave a shit about the Federal Reserve’s board. Who the drones were? What they did? Who cared!

But ever since the Fed started to expand its balance sheet in the fall of 2008, what the Fed does has mattered - and now with Quantitative Easing 2 and the effective monetizing of 50% of the Federal government’s deficit, it matters more than ever.

Next week, on January 25, the Federal Reserve’s Open Market Committee (FOMC) will meet. This meeting is important, because the composition of the board will change - and therefore, possibly the direction of the board. 

So like Kremlinologists of old, we have to start paying attention to what the FOMC looks like, if we want to divine what will happen.

What will happen not merely with monetary policy, but with the American economy itself. 

The Composition of the FOMC - Past & Future
From the Beast itself - the Fed’s own web page - we get the following description

The Federal Reserve controls the three tools of monetary policy - open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

So like the Beast says: Insofar as the extraordinary measures the Fed has taken over the last two years or so, what matters is the Fed’s Open Market Committee (FOMC). The Board of Governors plus four of the regional Federal Reserve presidents serve on the FOMC, the four regional Fed presidents serving on a rotating basis. As the website says, the FOMC is “responsible for open market operations” - and that covers the original Quantitative Easing (QE), QE-lite, and QE-2. 

So who makes up the FOMC is crucial. The following is a list of the voting members for the 2010 calendar year, and a list of the voting members for the year 2011 starting at the first meeting, January 25:


The first seven names are the permanent members of the FOMC, while the last four names are the rotating members from the regional banks.

Clearly, the Board of Governors - because of their permanence - is where we should start our analysis. So let’s:

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