What the FOMC Rotation Could Mean for Interest Rates

The Federal Reserve’s policy committee is changing for 2025, and the turnover could affect the central bank’s decisions on setting interest rates. 

The Federal Open Market Committee, the group responsible for setting the influential fed funds rate, will swap out four of its voting members this year in a regularly scheduled rotation.

Four presidents of regional Federal Reserve banks will be voters: Austan Goolsbee of the Chicago Fed, Susan Collins of the Boston Fed, Alberto Musalem of the St. Louis Fed, and Jeffrey Schmid of the Kansas City Fed. They will replace Thomas Barkin of the Richmond Fed, Raphael Bostic of the Atlanta Fed, Mary Daly of the San Francisco Fed, and Beth Hammack of the Cleveland Fed.

The changing of the guard could make the central bank slightly more inclined to keep its benchmark interest rate higher for longer, which would push up borrowing costs for all kinds of loans. 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. Overall, the result is a nudge in the hawkish direction.

Go Birds

In avian economics jargon, FOMC members are considered “hawks” if they generally favor higher interest rates to stifle inflation, while “doves” are more inclined to lower rates, which inject more easy money into the economy and boost business and spending.

The hawk-dove bias of each member depends on which expert you ask, but several economists saw the balance of the FOMC becoming more hawkish with the changeover. In a commentary, economists at Deutsche Bank said the composition is now “skewing in a somewhat more hawkish direction relative to last year’s group.”

The 12-member committee consists of five governors of the Federal Reserve system, the president of the Federal Reserve Bank of New York, and four members who rotate yearly among the 11 other regional banks in the Federal Reserve system. (New York has a privileged spot because of its status as the nation’s financial capital.)

The turnover takes place at a crucial time for the Fed, which is attempting to keep interest rates high enough to subdue stubbornly high inflation while not keeping them so high that it drags the economy into a tailspin. Their job will be complicated by the changeover in presidential administration: President-elect Trump has a history of clashing with Fed chair Jerome Powell, has said interest rates are too high, and could implement policies such as tariffs and tax cuts that push inflation up.