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The Key Takeaways
- The Federal Reserve policy committee's annual rotation gives more votes to "hawkish" members this year, whom experts see as more inclined to keep interest rates higher.
- Fed is trying to balance the need to have rates that are high enough for inflation, but not so high as they would crush the economy.
- Central bank on collision course with Donald Trump. Trump has pushed the Fed to reduce rates in order to boost the economy, even at the cost of fueling inflation.
Federal Reserve policy committee will be changing in 2025. This could impact the central banks decisions about setting interest rates.
In a regular rotation, four members of the Federal Open Market Committee (the group that sets the Fed Funds rate) will be replaced this year.
The four presidents will include Austan Goolsbee from the Chicago Fed; Susan Collins from the Boston Fed; Alberto Musalem, of the St. Louis Fed and Jeffrey Schmid, of Kansas City Fed. The four presidents will be replacing Thomas Barkin from the Richmond Fed; Raphael Bostic from the Atlanta Fed; Mary Daly from the San Francisco Fed; and Beth Hammack (from the Cleveland Fed).
This could lead to a central bank that is more likely to raise its benchmark rate for longer. The borrowing cost for any type of loan would then increase. That's because the committee is gaining three members considered "hawks" by some experts (Collins, Schmid, and Musalem) and one "dove" while losing two hawks, one dove, and one voter rated as "neutral" by analysts at Wells Fargo. The overall result shows a slight nudge towards hawkishness.
The Go Birds
FOMC Members are referred to as avian economists in avian jargon “hawks” If they favor higher rates of interest to curb inflation. “doves” Lower rates will encourage more spending and business.
You can ask different experts about the hawk or dove bias each individual member has, but most economists agree that with the new members the FOMC balance became more hawkish. The composition of the FOMC has changed, according to economists from Deutsche Bank. “skewing in a somewhat more hawkish direction relative to last year’s group.”
This 12-member committee is made up of five Federal Reserve governors, the President of the Federal Reserve Bank of New York as well as four other members that rotate annually amongst the Federal Reserve’s 11 regional banks. New York enjoys a privileged position due to its role as the nation’s financial capital.
The Fed is at an important time. They are trying to balance keeping interest rates high to combat stubbornly rising inflation without dragging the economy to a tailspin. The change in the presidential administration will complicate their job. President-elect Trump, who has clashed with Fed Chair Jerome Powell before, may implement tariffs or tax cuts which would push inflation higher.
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