A March 17 Business graphic incorrectly identified Donald L. Kohn as the president of the Federal Reserve Bank of Kansas City. He is a member of the Fed's board of governors.
Hanging on Whose Words?
Friday, March 17, 2006
Bill Poole, who?
That would be William Poole, president of the Federal Reserve Bank of St. Louis and one of several central bank officials who has gained a bigger share of the spotlight now that former chairman Alan Greenspan has stepped down.
Greenspan had so dominated Fed policymaking in recent years that Wall Street parsed his words most intensely for clues about the central bank's take on the economy and plans for adjusting interest rates, giving his colleagues relatively short shrift.
But last year, as Greenspan's departure approached, financial analysts, traders and investors began studying more closely the public comments of the other six Fed board members and 12 regional Federal Reserve Bank presidents, all of whom sit on the Federal Open Market Committee, the central bank's top policymaking group.
Greenspan's often cryptic comments still affected the markets more than those of any other member of the group in 2005, but his dominance "dropped dramatically" last year compared with previous years, according to a recent analysis by Brian Sack, vice president of Macroeconomic Advisers LLC. Sack measured the movement of the yield on the two-year Treasury note following each committee member's public speeches, congressional testimonies and interviews with the media.
The chairman's total impact was only about twice as large last year as that of the next most market-moving Fed official -- Poole, a former Brown University economics professor and Reagan administration economic adviser. From late 2001 through 2004, by contrast, Greenspan's impact had been more than six times that of the second-place market mover.
One possible explanation is that the markets believed "the committee was going to become more democratic once Greenspan departed, and hence began to pay more attention to the comments by other FOMC members," Sack wrote.
"Such a change in the committee's dynamics would be natural with any new chairman. But it might especially be so in the case of [new Fed Chairman Ben S.] Bernanke, because we believe that he will truly want to run the committee as a committee, one in which rate decisions are determined by a true policy discussion among the committee members," Sack said.
Bernanke, who served as a Fed board member from 2002 through early 2005, ranked second in market influence in Sack's pre-2005 sample.
As chairman, Bernanke's words will undoubtedly get more attention and reaction from the markets than those of the other committee members, Sack wrote, guessing that "his dominance will fall somewhere between Greenspan 2005 and Greenspan pre-2005."
The top five market movers on the committee in 2005 were Greenspan, Poole, Fed board member Donald L. Kohn, Dallas Fed Bank President Richard W. Fisher and New York Fed Bank President Timothy F. Geithner, Sack found.
Kohn is a 35-year veteran of the Fed and one of its most influential strategists on monetary policy, the use of interest rates to guide the economy. Geithner is the Fed's primary liaison to Wall Street.