If the European Central Bank (ECB) had not been led by an Italian but, for example, by a German during the last crisis, would the ECB have followed the same policy as it is now? We will never know, but the chance that the bank would have behaved differently is not negligible.
So it really does matter which central bankers are behind the controls at what time. With that conclusion we can look at the Fed (the US central bank). The Fed's interest rate committee consists of the executive board and 12 governors of the regional central banks (spread throughout the country). Deciding what to do with interest rates, however, is reserved for an even smaller subset of monetary knights.
Who decides?
In 2018, there are only 9 people who can determine what is done with the interest rate: the current 4 members of the executive board (there are now 3 vacant positions) and 5 of the 12 presidents of the regional central banks. Each year, only 5 of the 12 regional monetary heads have voting rights. The head of the Fed in New York can always vote. Who the other 4 are is arranged in a rotation schedule. These rotate on January 1 of each year.
The governors of the central banks in Atlanta, Richmond, Cleveland and San Francisco determine interest rate policy until January 1, 2019, together with Fed Chairman Jerome Powell and his executive board. On January 1, that privilege will transfer to colleagues from Chicago, Boston, Saint Louis and Kansas City. That is not a useless fact, but very relevant. After all, it makes a lot of difference who gets to raise his or her hand for the bank's price.
Different types of bankers
The market distinguishes 3 types of central bankers: the hawks, doves and the rest (which I will call the sparrows). The hawks are those who are happy to increase interest rates and only lower them if there is no other option. The pigeons are their colleagues who can always come up with a reason to cut interest rates and keep them as low as possible. Anyone who does not belong to one of these 1 types is called boring and neutral. A kind of sparrow among central bankers.
Of the 4 regional presidents who have the right to vote this year, 1 is a hawk and the other 3 are sparrows. Of the 4 that take their place, 3 are hawks (1 super hawk) and 1 is a dove. In short: the composition of the interest rate committee will be such that the modus operandi can simply be that interest rates will rise, unless it is really irresponsible.
That super hawk has argued for an interest rate increase at almost every meeting since 2011. If she did that in that economic environment, she will certainly immediately call for interest rate increases from January. This is because the current economic environment is positive. A plea that can count on quite a bit of approval, given the composition of the committee next year.
Implement interest plans
Personally, I expect that the bank will not be able to fully implement the 2019 interest rate plans. The Fed wants to raise interest rates 3 times in 2019 and 1 time in 2020. My assessment is that the economic environment is much less favorable than the bank assumes. As a result, they will only be able to raise interest rates twice next year.
Due to the composition of the group, I would not be surprised if the language coming out of the Fed office will be tough and have the undertone that the market should take interest rate increases into account. Only later will the bank moderate its tone, if economic growth is indeed lower.
Until then, interest rate increases (combined with that tough language) could push up long-term interest rates in the United States. Experience shows that it pulls the German counterparts up with it; provided that the capital market in the eurozone functions normally. That is currently not the case: due to quantitative easing from the ECB. However, the bank will not stop doing this until December 31 of this year.
Volatility in stock markets
It would also not be surprising if the Fed's stance causes volatility in the stock markets. Just like a goalkeeper who kicks the ball temporarily wins against gravity. However, if economic growth in 2019 is less buoyant than the bank expects, it will adjust its monetary policy.
My guess is that this will happen just before summer or in the summer. Depending on which language the ECB speaks by then (in October the bank will have a new president, who will speak to the outside world on behalf of the bank), 2019 could well be a year in which the euro gains significant ground against the dollar.