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

According to the Zhitong Finance APP, as the Federal Reserve continues to tackle the "last mile" of fighting inflation and hints at a slower pace of rate cuts in the future, a new batch of voting members will join the Federal Open Market Committee (FOMC) in 2025, which may make policy-making more hawkish.

In 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 from 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 end their voting eligibility.

Hammack only joined the Cleveland Fed in August this year, and she was the sole dissenter when the FOMC decided to lower the interest rate target on December 18, advocating for maintaining the interest rate. This was the second dissenting vote within three meetings, the previous one came from Board member Michelle Bowman, who cast a dissenting vote in the September meeting.

New Voting Members' 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 made significant achievements in the academic economics field, and Goolsbee previously served as the Chairman of the Council of Economic Advisers during the Obama administration. Over the past year, Goolsbee has been known for his relatively dovish stance, advocating for rate cuts this fall and emphasizing the achievements in inflation reduction over the past two years.

Musalem has extensive experience in the investment field, having worked at companies such as Tudor Investments and Evince Asset Management. Schmid focuses on banking issues and was the CEO and Chairman of Mutual of Omaha Bank before joining the Kansas City Fed.

Additionally, Philadelphia Fed President Patrick Harker is expected to retire in June 2025, and the Philadelphia Fed is currently seeking a successor. The Philadelphia Fed will rotate into the FOMC voting seat in 2026.

Subtle Balance Between Hawks and Doves

According to the FOMC's latest quarterly economic projections summary, a cumulative rate cut of 0.5 percentage points is expected by 2025, but 4 anonymous officials anticipate a smaller rate cut. Among the new voting members, Musalem and Schmid have recently expressed more hawkish views than their colleagues Schmidt stated on November 13, "Now is the time to gradually reduce the restrictive nature of monetary policy, but it is still uncertain how much further interest rates will decline or where they will ultimately settle." Meanwhile, Musallam expressed concerns in early December about the Federal Reserve's "last mile" in combating inflation, suggesting that slowing the pace of rate cuts in 2025 would be appropriate, and noted that interest rates are unlikely to return to the near-zero levels seen 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 U.S. labor market, believing that current policies may be too tight.

Federal Reserve Chairman Powell responded to the divisions within the committee in July this year: "It is normal to have differing opinions. No one has a veto. It's just a matter of who supports or opposes in a vote."