James Alexander/Feb 3, 2016
The role of the President of the NY Fed is to be the lightning conductor of market sentiment to the FOMC. The NY Fed is the operating arm of the FOMC, conducting the open market operations.
Because of this importance the President of the NY Fed gets a permanent vote at the FOMC, alongside the senior Fed staffers like Yellen and Fischer. What the NY Fed President says is important, often more so than the Vice-Chairman of the Fed, currently Fischer, or sometimes even than the Fed Governor themselves.
While Dudley has always physically looked uncomfortable passively tightening monetary policy and also actively doing so, he is incredibly loyal too. Twenty years at Goldman Sachs would have taught him that. He said nothing in public or officially dissented to any of the moves. Today we get this:
In addition, the weakening outlook for the global economy and any further strengthening of the dollar could have “significant consequences” for the health of the U.S. economy, William Dudley, president of the Federal Reserve Bank of New York, told MNSI in an interview.
“One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting,” said Dudley, a permanent voter on the Federal Open Market Committee, the Fed’s monetary policy arm.
“So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision,” he said.
But how can he and his colleagues be so obtuse as to think that the tighter financial conditions are not a direct response to their own active tightening of monetary policy? It is this obtuseness, this stubbornness, that is of major concern, and makes monetary policy so unpredictable at times. Humans make errors
Predicting when the humans will recognise their errors, if ever, is all too subjective. When will the FOMC reverse course: the S&P hits 1500, unemployment at 8%, an inverted yield curve? All of them? We know they will change their minds, the question is whether market players can stay solvent until they do.