FOMC members rarely change their preferences – paper

Researchers find policymakers tend to form their preferences early on in life
Janet Yellen's first FOMC meeting
An FOMC meeting chaired by Janet Yellen
Federal Reserve

Members of the Federal Open Market Committee rarely change their stance on policy once their “core” economic and political views have formed, according to recent research.

Drawing on a new dataset of policymakers’ origins and preferences, stretching back to the committees of the 1960s, Michael Bordo and Klodiana Istrefi identify certain factors contributing to whether an individual becomes a “hawk”, “dove” or “swinger”. Once in a category, policymakers rarely switch.

In the National Bureau of Economic Research working paper, Bordo and Istrefi find that members born during a period of high inflation, who graduated from a university linked to the Chicago (“saltwater”) school, and who were appointed by a Republican president or a regional Fed board, are more likely to be hawks.

Similarly, those born during a period of high unemployment, who graduated from a university with Keynesian leanings (“freshwater”), and who were appointed by a Democratic president, are more likely to end up as doves.

Swingers tend to share some characteristics of doves, but tend to emerge when thinking is in flux and policymakers are debating major events, such as the great inflation of the 1970s or the move to inflation targeting.

The authors say one of their unique contributions is to trace the origins of policy preferences back to early life, drawing on “insights from political science and social psychology”.  This literature suggests people form “core” economic and political beliefs early in life, which then remain “fairly unaltered for the rest of their lives”.

For example, FOMC members born during the Great Depression tended to end up as doves, while those born during high inflation around the First World War tended to become hawks.

One of the clearest findings is that regional Fed presidents are far more likely to be hawks. Of the 73 regional presidents in the sample, 51% are hawks and only 11% are doves, with the rest being swingers or unknown. Of the Fed board members, 54% are doves and 24% hawks.

Men are more likely to be hawkish (41% hawks vs 27% doves) than women (21% hawks vs 57% doves), However, the sample size for women is small – 14 women served on the FOMC over the period (1960–2015), compared with 116 men.

Bordo and Istrefi note that the relationships they highlight may change in the coming years. They observe that the freshwater and saltwater schools have tended to mingle their thinking more in recent years. “We suspect that if we were to do the same analysis 20 years from now, we may not observe such divisions,” they say.

Furthermore, they suggest the focus on inflation targeting may reduce the impact of political ideology, while the increasing importance of financial stability may also reshape preferences. “Although it is too soon to tell, ideology could still play a role,” they say.

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