New voting members will join the monetary policy decision-making. Will the Federal Reserve be more hawkish in 2025?

With the Federal Reserve continuing to fight inflation in the "last mile" and hinting at a slower pace of interest rate cuts in the future, a new batch of voting members will join the Federal Open Market Committee (FOMC) in 2025, which could make policy-making more hawkish. During each FOMC meeting, all 19 senior officials participate in discussions, but only 12 have voting rights: including 7 members of the Federal Reserve Board, the President of the New York Fed, and 4 rotating voting members among the 11 regional Fed Presidents. In 2025, the current voting members, Richmond Fed President Thomas Barkin, Atlanta Fed President Raphael Bostic, San Francisco Fed President Mary Daly, and Cleveland Fed President Beth Hammack, will lose their voting eligibility. Hammack only joined the Cleveland Fed in August of this year, and she was the sole dissenter when the FOMC decided to lower its rate target on December 18, advocating for keeping rates unchanged. This was the second dissenting vote in three meetings, the previous one came from Board member Michelle Bowman who cast a dissenting vote in the September meeting. New voting members with diverse backgrounds may influence policy direction In 2025, the new voting members will include Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee, St. Louis Fed President Alberto Musalem, and Kansas City Fed President Jeffrey Schmid. These new members have diverse backgrounds: Collins and Goolsbee have significant achievements in the academic economics field; Goolsbee previously served as the Chairman of the Council of Economic Advisers during the Obama administration. Over the past year, Goolsbee has become known for his relatively dovish stance, advocating for rate cuts this fall and emphasizing the achievements in slowing inflation over the past two years. Musalem has rich experience in the investment field, having worked at companies like Tudor Investments and Evince Asset Management. Schmid, on the other hand, focuses on banking issues; prior to joining the Kansas City Fed, he served as the CEO and Chairman of Mutual of Omaha Bank. Additionally, Philadelphia Fed President Patrick Harker is expected to retire in June 2025, and the Philadelphia Fed is currently looking for a successor. The Philadelphia Fed will rotate into the voting seat on the FOMC in 2026. The delicate balance between hawks and doves According to the latest quarterly summary of economic projections from the FOMC, a cumulative interest rate cut of 0.5 percentage points is expected in 2025, but 4 anonymous officials predict a smaller rate cut. Among the new voting members, Musalem and Schmid's recent remarks appear more hawkish compared to their colleagues. Schmid stated on November 13th, "Now is the time to gradually reduce the monetary policy constraints, but it is not certain how much further interest rates will fall or where they will ultimately settle." Musalem expressed concerns about the Fed's fight against inflation in the "last mile" in early December, believing that it is appropriate to slow down the pace of rate cuts in 2025 and pointing out that interest rates are unlikely to return to the near-zero levels between the financial crisis and the COVID-19 pandemic in the short term. In contrast, members like Goolsbee are more focused on signs of weakness in the US labor market, suggesting that current policy may be too tight. Fed Chair Powell responded to the dissent within the committee in July: "Having different opinions is normal. No one has veto power. It's just a matter of who supports or opposes through voting."