The Fed Is Going To Be More Dovish In 2015

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The Federal Open Market Committee will see some personnel changes in the new year that could change the way it votes.

Deutsche Bank chief economist Joseph LaVorgna wrote in a note Thursday that the changes in the makeup of the FOMC will produce a more dovish committee, or a committee that is cautious about the economy's prospects and prefers accommodative policy with low interest rates.

It's a crucial year for the committee, as it determines the path of monetary policy following the end of its quantitative easing program in an economy that is gaining momentum.

LaVorgna rated all the current 10 FOMC members on a scale of 1 to 5, with 1 being dovish and 5 being hawkish, and 3 being neutral. He then ranked the 2015 FOMC to conclude that the Fed will be more dovish next year.

Here's the table from his note with their scores:

Deutsche Bank

Two of the most hawkish members - or members who are optimistic about economic growth and wish for less monetary accommodation - are retiring: the Philadelphia Fed's Charles Plosser and Dallas' Stanley Fisher. Loretta Mester, a "moderate hawk," will also be leaving.

Narayana Kocherlakota, a Fed dissenter rated 1, will not vote next year but will likely be replaced by another dove, LaVorgna wrote.

LaVorgna explained what these changes mean for the FOMC's decisions in 2015:

"Clearly, this could have an impact on the timing of interest rate normalization next year, especially if the decision to raise rates around the middle of next year turns out to be a close call. The economy will certainly have to be performing well along with noticeable evidence of wage and/or price pressure."