Fed’s Inflation Hawks Bullard and Waller Among Key Officials to Watch

(Bloomberg) -- Federal Reserve Chair Jerome Powell and his top two lieutenants are watched by Wall Street for the most explicit communication on monetary policy, but leading hawks provide guidance that’s almost as important.

That’s according to a Bloomberg survey of economists who picked the chair and New York Fed President John Williams as the key voices to listen to, followed by Vice Chair Lael Brainard. 

But St. Louis Fed chief James Bullard was ranked alongside her while Governor Chris Waller, his longtime head of research, was also identified as an important signal. Both have been leading voices urging more aggressive action to fight inflation near 40-year highs.

The survey of 44 economists was conducted Dec. 2-7 in advance of the Dec. 13-14 Federal Open Market Committee meeting.

“Clearly Fed Chairman Powell carries the most weight in terms of determining the forward guidance for policy,” while Brainard has also been key because of her role and deep experience, said Kathy Bostjancic, chief economist at Nationwide Life Insurance Co. “The other two Fed officials that have emerged as leading voices on the FOMC are Governor Waller and St. Louis Fed President Bullard.”

The Fed’s official leaders carry the most clout in communication. In the survey, 97% viewed Powell as among the most important in signaling policy to markets, 83% saw Brainard as among the most or very important and 79% saw Williams as most or very important. 

The New York Fed president is vice chair of the FOMC and has a permanent vote, while the other 11 presidents vote on an annually rotating basis.

Among the other Fed governors, Waller was seen as most influential, with 51% seeing his speeches and interviews as most or very important. Michelle Bowman, who often speaks on community banking issues, and new governors Michael Barr, who is vice chair for supervision, Lisa Cook and Philip Jefferson were seen as having average or less-than-average impact with their communication.

What Bloomberg Economics Says...

“Williams, Brainard, Waller are whom I think of as the intellectual leaders among the group. Brainard and Waller are on the opposite end of the spectrum; Williams is more of between them. By paying attention to either Brainard and Waller one can get a sense of the debate/differences among the governors. By paying attention to Williams, one can get a sense of where the swing vote may be.”

— Anna Wong (chief US economist)

Bullard was the clear leader among the 11 remaining Fed presidents, with 65% of the economists seeing him as among the most important or very important. Loretta Mester, the Cleveland Fed president who’s also been an outspoken hawk, was also seen as influential, with 48% viewing her remarks as most important or very important. 

San Francisco Fed President Mary Daly, a leading dove, was seen as having a very important impact on markets with her communication by more than a third of the economists.

“In terms of influence, Bullard is a heavyweight among regional Fed presidents,” said Thomas Costerg, senior US economist at Pictet Wealth Management. “And with his former colleague Chris Waller, he has a strong ally at the Fed board. Even though Bullard will not vote, I suspect markets will continue to listen to him closely next year.”

Recently appointed presidents Lorie Logan of Dallas and Susan Collins of Boston, neither of whom have spoken much on monetary policy in their new roles, were seen as mostly average in importance or lower in importance. That was also the case with Austan Goolsbee, who starts in January at the Chicago Fed and hasn’t spoken on policy since his pick was announced on Dec. 1.

Waller was among the first Fed officials in mid-2021 to push for an early end to Treasury bond purchases, to set the stage for an eventual tightening, and has been explicit in calling for higher interest rates this year, often going beyond comments by Powell in contrast to most other governors.

Bullard has repeatedly called for “front-loading” of interest rates to dampen inflation. He was the first Fed official to urge hikes of a half-point or more and the first to publicly discuss the idea of 75 basis-point hikes, both eventually adopted by the FOMC.

“I find the FOMC’s hawkish contingent — Bullard, Waller, Mester — as more useful to monitor in the current environment given the committee’s signaling that overtightening is preferred to undertightening,” said Mahir Rasheed, senior economist with Swiss Re in New York.

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