New Fed lineup next year could mean more dissents

Federal Reserve Chairman Ben Bernanke will likely face more pressure from some his own colleagues next year to scale back the Fed's $600 billion bond-buying program to rev up the economy.

Two regional Fed bank presidents known to be especially vigilant about the risk of price increases will become voting members of the Fed's main policymaking group. The group is called the Federal Open Market Committee.

The two officials — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — are among four regional bank presidents who will rotate onto the committee next year. Plosser and Fisher are "inflation hawks" who have been critical of the $600 billion plan and of other Fed efforts to invigorate the economy.

Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, who has backed Bernanke and defended the new program despite some concerns about it, also will become a voting member in 2011. So will Charles Evans, president of the Federal Reserve Bank of Chicago, who supported further bond purchases by the Fed before the $600 billion plan was announced Nov. 3.

All told, the new lineup of Fed presidents essentially includes one extra hawkish voice compared with this year's lineup.

The Fed's first meeting next year will be Jan. 25-26.

Even with the new lineup, Bernanke is widely expected to have ample support among the panel's 11 voting members to steer policy in the direction he thinks best for the economy. One such policy is the Fed's Treasury bond-buying program, which is intended to lower long-term interest rates, lift stock prices and encourage higher spending.

Since taking the Fed's helm in 2006, Bernanke, who had spent most of his professional life in academia, has sharpened his skills as a consensus builder.

That said, Plosser and Fisher could turn out to be frequent dissenters next year — if the Fed keeps its $600 billion program intact and holds borrowing costs at a record low next year as many economists expect it to.

"I do not think the benefits outweighed the costs," Plosser said of the bond-buying program earlier this month. "I am still somewhat skeptical that we will see much of a stimulative effect from the new round of purchases."

Plosser said he also feared the program will complicate the Fed's strategy to reel in its stimulus once the economy regains its health. And that could heighten inflation pressures, Plosser has said.

After the Fed announced the $600 billion program, Fisher said he feared the Fed was "prescribing the wrong medicine." Fisher raised the possibility that the program could spark inflation and speculative buying on Wall Street. He also expressed concern that the Fed was, in effect, printing money to pay for trillion-dollar-plus federal budget deficits.

For now, most economists think the Fed will end up buying the full $600 billion in Treasury bonds, as scheduled, by the end of June.

This year, inflation hawk Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the sole voice of dissension. Hoenig has said he fears that by pouring more dollars into bonds and keeping a key interest rate near zero, the Fed will unleash inflation and new bubbles in prices of stocks or other assets that will eventually burst.

After the bubble in housing prices began to burst in 2006, the economy fell into the worst recession since the Great Depression. Critics blame the Fed policy for feeding the housing price bubble. They contend that then-Chairman Alan Greenspan held rates too low for too long after the 2001 recession.

The Federal Open Market Committee is composed of the Fed's Board of Governors in Washington, which includes Bernanke. The board now totals six members but at full strength has seven members. It also includes the president of the Federal Reserve Bank of New York. And, it includes four of the remaining 11 presidents of the Fed's regional banks. They serve one-year terms on a rotating basis.