The Federal Open Market Committee (FOMC) met on December 10-11. It was the committee's last scheduled meeting of the year and it culminated with a decision to leave the target range for the fed funds rate unchanged at 1.50-1.75%.

When 2019 began, the target range was 2.25-2.50%. There were three rate cuts this year, however, as the FOMC worried about downside risks tied to weak business investment, protectionist trade actions, weak growth abroad, and weakening inflation expectations.

It was a drastically different policy path than the one followed in 2018 and it was a policy path that the stock market celebrated as a staying factor for the bull market and longest-running economic expansion on record.

That path wasn't an entirely smooth one. There were some dissents along the way -- both hawkish and dovish. In the end, the consensus view was imbued with a dovish disposition, beginning with Fed Chair Powell's dovish-minded pivot in early January.

By most accounts, the Federal Reserve is expected to maintain its dovish-minded bias in 2020. That view is borne out of its median projection for the policy rate in 2020, which suggests there won't be a rate hike next year. To be fair, the Fed isn't expected to cut rates next year either, but doing nothing qualifies as dovish given that the current target range is an accommodative policy stance.

No one knows for certain what the future holds, so the prevailing policy outlook is subject to change. If any change is made, though, it will be under the direction of a newly-comprised Federal Open Market Committee.

A Little Background

When the FOMC is at full capacity, there are twelve voting members: the seven members of the Board of Governors and five of the twelve Federal Reserve Bank presidents.

The president of the Federal Reserve Bank of New York has a permanent vote on the committee, so the remaining four presidents with a vote rotate annually. They serve one-year terms beginning January 1 each year.

Other Federal Reserve bank presidents attend the FOMC meetings and contribute to the discussions, but they do not cast a vote for setting policy.

The members of the Board of Governors are nominated by the President of the United States and are confirmed by the Senate. Michelle Bowman is the newest Fed governor, having taken office on November 26, 2018.

There are currently two vacancies on the Board of Governors. President Trump has nominated Christopher Waller, executive vice president of the Federal Reserve Bank of St. Louis, and Judy Shelton, the U.S. executive director of the European Bank for Reconstruction and Development, to fill those vacancies. Neither has been confirmed yet by the Senate.

Accordingly, there are only ten voting members on the FOMC at this time.

The Lineup

Whose names will you be hearing a lot throughout 2020? The five governors are Jerome Powell (Chairman), Richard Clarida (Vice Chairman), Lael Brainard, Randal Quarles, and Michelle Bowman.

Fed governors typically vote in unison with the Fed Chair, which means any dissension in the ranks usually originates among the voting Federal Reserve Bank presidents.

The names you'll want to be closely acquainted with in that realm include John Williams (New York), Patrick Harker (Philadelphia), Robert Kaplan (Dallas), Neel Kashkari (Minneapolis), and Loretta Mester (Cleveland).

Each FOMC member would acknowledge that they are data dependent for their interest rate position, yet the market makes a living out of reading between their speech lines when thinking about what the FOMC will do with monetary policy.

Below we feature excerpts from recent speeches/interviews from the incoming FOMC presidents (emphasis our own) to provide some flavor for their perceived policy tilt. The speeches/interviews have been accessed through the St. Louis Federal Reserve's repository of speeches from Federal Reserve members.

Patrick Harker

In a November 13 speech entitled, An Economic Outlook:

"With the outlook generally positive, and the economy in a good place, I come to the part that everyone really cares about: rates. My own view is that we should hold steady for a while and watch how things unfold before taking any more action. I am not a voting member on the FOMC this year, but I held this same view regarding the last two cuts [September and October]. I would have preferred to hold firm."

Robert Kaplan

In a November 27 interview with The Wall Street Journal:

"And then we still have the situation where you've got weak global growth, weak manufacturing and weak business investment. But we've got a very strong consumer, and I think on balance, if we can grow 2% next year, and if we get some stability in some of these trade uncertainties, hopefully global growth can stabilize. And so I think the prognosis for 2020 is reasonably good and that we've got a good opportunity to grow at 2%. And that reinforces to me that a 1.5% to 1.75% [fed-funds rate] is probably a reasonably good setting in light of that outlook."

"But I am open minded about looking at, regarding inflation, an averaging period that's longer than 12 months. Currently the way we look at inflation is trailing 12 months. I think some analytic that gives us an opportunity to look at inflation over a longer time frame than 12 months, which takes into account underages and overages, I'm open minded about that. I'm not willing though to make a commitment on how we're going to act-what our judgment is going to be based on that analytic."

"You have to also take into account the implications of being unduly accommodative on financial assets. Excesses and other imbalances that could build into the economy because of accommodative monetary policy. That's a factor you have to consider. And I believe one of the lessons of 2008-09 is we have to keep an eye always on financial stability because it's very difficult to achieve your dual mandate if you don't have financial stability. And I think history is showing that if excesses and imbalances build to too great an extent, they're very painful to unwind later."

Neel Kashkari

In a November 4 interview with CNBC:

"I think as of right now that data looks pretty good. If the economy continues to perform as we expect, I would expect that we're done for a while," Kashkari said. 'But we need to see. I think things can change pretty quickly."

He said he thinks current policy is "perhaps slightly accommodative now."..."Make an announcement today that we will not raise rates until we get core inflation back to our 2% target," Kashkari said during a 'Squawk Box' interview. "That's not a commitment to cut rates, that's not a commitment to hold forever, it's simply saying we're not going to raise rates prematurely."

Loretta Mester

In an October 10 speech at John Carroll University entitled, An Update on the Economic Outlook and Monetary Policy:

"Because monetary policy affects the economy with a lag, policymakers need to be forward looking. So the current uncertainty around the economic outlook poses some challenges. At each of its meetings in July and September, the FOMC reduced the target range of the federal funds rate by 25 basis points; the current target range is 1 3/4 to 2 percent. The Committee said that it views sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but that uncertainties about this outlook remain.

I was certainly sympathetic to the view expressed by the majority; indeed, my view of appropriate policy has become more accommodative since last year based on my assessment of economic and financial market developments. But my preference was to leave the fed funds rate unchanged at the July and September meetings. My preferred strategy was to take action only if there were evidence of a material deterioration in the outlook and not merely on heightened risks.

In assessing the path of policy going forward, I will be monitoring incoming economic and financial data and reports from District contacts. I will be particularly attentive to signs that the weakness in investment and manufacturing is broadening, and spilling over to reductions in hiring and household spending, and to signs that long-run inflation expectations are destabilizing... Absent those signs, with labor markets strong and growth near trend, maintaining a shallow policy path for a while to support a gradual rise in inflation and not overreacting to shocks that might, for a time, move inflation somewhat above 2 percent would be appropriate, in my view."

What It All Means

The newcomers to the FOMC in 2020 have some mixed positions. The 2019 FOMC cut rates when it did against the stated preferences of Mr. Harker and Ms. Mester. That was roughly 50-75 basis points ago, so it is fair to argue that Mr. Harker and Ms. Mester aren't going to be advocating for rate cuts anytime soon -- and certainly not if the U.S. economy unfolds as the Fed expects.

We don't think Mr. Kaplan or Mr. Kashkari will be calling for rate cuts anytime soon either, yet they don't sound as if they would be arguing for a rate hike anytime soon either. Mr. Harker and Ms. Mester, however, probably don't have as high of a bar for a rate hike as the others do since they were against prior rate cuts in 2019.

The policy path in 2020 just might be a smooth one, but surprises are a natural part of the market landscape.

The Fed isn't pre-committed to its policy position and Fed Chair Powell has made it known time and again that the Fed doesn't have any political agenda in managing monetary policy, which is worth noting for the upcoming election year.

It is fair to say, though, that the bar for a rate hike in 2020 is higher than the bar for a rate cut is, partly because of the uncertainty that will be linked to political and foreign affairs and partly because the Fed exiting 2019 is hoping to invite a pickup in inflation and inflation expectations.

Managing that bar will be the work of a newly-comprised FOMC that will have its first policy decision to make Jan. 28-29.

--Patrick J. O'Hare, Briefing.com