As 2025 approaches, the Federal Reserve's Federal Open Market Committee (FOMC) is set to undergo a new round of adjustments in its voting members. This change comes amid rising inflation concerns in the U.S., as well as the potential for newly elected President Trump's fiscal policies to add more uncertainty to the Fed's monetary policy. Analysts point out that the new FOMC may exhibit more pronounced divisions, which could have a profound impact on future interest rate policy decisions.
Adjustment of FOMC Voting Members
According to the FOMC's annual rotation mechanism, four regional Fed presidents will become new voting members in 2025: Boston Fed President Susan Collins, St. Louis Fed President Alberto Musalem, Kansas City Fed President Jeff Schmid, and Chicago Fed President Austan Goolsbee. Meanwhile, Cleveland Fed President Beth Hammack, San Francisco Fed President Mary Daly, Richmond Fed President Tom Barkin, and Atlanta Fed President Raphael Bostic will step down from their voting seats.
The inclusion of new voting members may further intensify policy stance differences. For example, Musalem and Schmid are more inclined to remain patient, gradually adjusting rates, while Collins emphasizes cautious easing, and Goolsbee, as a dovish advocate, supports significant downward rate room over the next 12-18 months.
Policy Stances of New Voting Members
- Alberto Musalem (St. Louis Fed): Advocates for slowing down the rate cuts, believing the current inflation cooling process may stall or even reverse.
- Jeff Schmid (Kansas City Fed): Emphasizes cautious rate adjustments to avoid causing major financial market fluctuations.
- Susan Collins (Boston Fed): Supports further easing but calls for a comprehensive assessment of economic data and risk balance.
- Austan Goolsbee (Chicago Fed): Argues that the current policy is above the neutral level, predicting borrowing costs will significantly decline within the next 18 months.
Potential Intensification of Policy Divisions
In 2024, the Fed has seen several instances of dissent among voting members; for example, Cleveland Fed President Hammack opposed a rate cut at the December meeting, and Bowman opposed a 50 basis point cut in September. In 2025, the internal divide between the hawkish and dovish members of the FOMC could become more pronounced, potentially diminishing the influence of centrists.
Former Fed Vice Chairman Don Kohn noted that such division is not necessarily negative. "Clashing viewpoints can better reflect the complexity of the economic environment, aiding the committee in making more prudent decisions."
The Complex Impact of Trump's Policies
Upon returning to the White House, Trump may implement policies including higher tariffs, tax cuts, and mass deportation of immigrants. These measures are expected to raise inflation and strain the labor market, adding more variables to the Fed's interest rate decisions. Economists predict that in 2025, the Fed's pace of rate cuts may be slower than previously expected, in response to inflation pressures from Trump's policies.
Future Outlook: Policy Path Full of Uncertainty
At the Fed's December 2024 meeting, the benchmark rate was cut by 25 basis points, with projections for only two rate cuts in 2025. Powell emphasized that future rate cut trajectories would depend on the sustained decline of inflation. However, the diverse viewpoints of FOMC members and Trump policy could make the monetary policy path in 2025 more complex.
Market observers believe that formulating Fed policy in 2025 will face greater challenges, with policy uncertainty potentially having a profound impact on financial markets and economic activity. As the new FOMC formally operates, adjustments in rate policy will become a focal point for the market.
