By Ann Saphir
(Reuters) – A slightly more hawkish set of regional Federal Reserve bank governors will become voters on the U.S. central bank’s interest rate panel in 2025, raising the possibility that further rate cuts next year could spark more dissent like the one on the U.S. central bank. Wednesday from the head of the Cleveland Fed.
Fed Chairman Jerome Powell has already signaled a pause in interest rate cuts in January and said Wednesday that policymakers will proceed cautiously, with further cuts in borrowing costs contingent on more progress in reducing inflation.
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But the annual change in the composition of the Federal Open Market Committee’s voting members could marginally increase resistance to further cuts.
“It opens the door to more dissenting voices next year,” says TD Securities analyst Oscar Munoz, because the incoming group appears hawkish compared to the outgoing group.
All 12 regional Fed presidents discuss and debate monetary policy at each of the U.S. central bank’s eight annual meetings, and many have said their status as voters or non-voters has no bearing on their power around the policy-making table.
But while all seven Fed governors and the New York Fed president vote on rates at every meeting, only four of the Fed’s 11 other regional presidents do so, each getting a one-year turn, according to a report. fixed schedule.
This week’s rate cut, which erased a full percentage point of the Fed’s rate cuts since September, was already a close call.
Four of the Fed’s 19 policymakers wrote down projections showing they didn’t think the latest rate cut was appropriate, and one, Fed President Beth Hammack of Cleveland, cast a dissenting vote.
Hammack will leave the voting panel next year. Chicago Fed President Austan Goolsbee will vote in her place. His view that policy rates will have to fall sharply next year to avoid an unnecessary slowdown in the labor market clearly makes him more lenient than Hammack.
But two other new voters — Fed President Alberto Musalem of St. Louis and Jeffrey Schmid of the Kansas City Fed — are giving the 2025 interest rate panel a more aggressive slant.
They will replace Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly, who are seen as centrists. Bostic and Daly will vote in 2027.
TD Securities’ Munoz is among analysts speculating that Musalem was one of four policymakers who submitted projections indicating opposition to this week’s rate cut, as did Hammack and another non-voting Fed president, perhaps even Schmid.
Both Musalem and Schmid have indicated some hesitation about further rate cuts, with Musalem saying earlier this month that it may be time to pause the easing cycle.
The fourth could have been Fed Governor Michelle Bowman, who disagreed with September’s half-percentage-point rate cut but who may have supported this week’s rate cut over the course of the two-day meeting, Munoz and others speculated.
TWO CUTTINGS
The Fed won’t reveal which policymakers made which forecasts for the next five years, and while policymakers themselves are free to say so, they often refuse to do so. Either way, Fed rules prohibit them from speaking until Friday. Spokespeople for Musalem and Schmid did not respond to requests for comment.
Boston Fed President Susan Collins will complete the 2025 panel of rotating Fed electors, replacing Richmond Fed President Thomas Barkin.
The majority of Fed policymakers see two rate cuts next year, according to updated quarterly projections released Wednesday, a view consistent with keeping rates steady next month and perhaps longer as policymakers wait for inflation to fall further and assess the effects of new policies. such as the tariffs that newly elected President Donald Trump has threatened to impose once he takes office on January 20.
As the year progresses, Fed policymakers could become divided again, especially if the labor market cools faster than inflation.
A more hawkish group of Fed committee voters could increase the risk of dissent, although that may not change policy outcomes.
“Ultimately, Powell will likely have the first and last say on where policy goes,” said Michael Feroli, chief U.S. economist at JPMorgan.
(Reporting by Ann Saphir; Editing by Paul Simao)
