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Monetary Policy Roster Overhaul in Store

After Janet Yellen’s departure, there will only be three of seven appointed members on the Fed’s Board of Governors.

These positions are appointed by presidents, and are structured such that they will be minimally affected by the country’s political climate. As such, the terms are long and staggered.

But, the system doesn’t always work as designed. In fact, it’s never really worked to its intention. That’s because governors don’t serve their entire terms, as they’re not obligated to fulfill them.

All of which leads to the situation we have today, in which one sitting president may end up electing the majority of the board of governors, if not the entire board itself.

Regardless of who fills the positions, the drum is still beating for rate hikes. Estimates for this year are calling for three or four of them.

Meanwhile, 2 percent economic growth is good, as is low unemployment, but we could see wage inflation, and eventually recession, if things don’t go as planned.

Plus, with the Fed’s concurrent balance sheet reduction plan – also known as removing money from the economy – nobody knows what is in store.

Either way, there doesn’t seem to be much fear of potential inflation. That’s odd, given we’re in uncharted waters. At the end of the day, these Fed actions of rate hikes and capital reduction are essentially a big experiment.

If there is no money available, investors will be forced to sell.

Is this pre-1929 all over again?

Who knows.

If that is true, we probably could have avoided this a few years ago by slowing the Quantitative Easing program that pumped so much money into the economy, and raising rates gradually.

It’s not Monday morning quarterbacking if people have been saying it for years and years.

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