FOMC sees a major turnover in voting members! More hawks in position, will the Fed's policy stance undergo a 'major turnaround' in 2025?

The final interest rate meeting of the year in 2024 came to a close, with the Fed signaling hawkishness, making Wall Street banks more cautious about next year's interest rate path.

At the December interest rate meeting, despite the Fed cutting rates by 25 basis points as scheduled,the published interest rate 'dot plot' indicates that there are only expected to be two more rate cuts by 2025.This is a halving of the planned rate cuts compared to the dot plot forecast in September, which predicted four rate cuts for next year.

In addition, compared to the monetary policy statement of the Federal Reserve last month, a major change in this month's statement is the addition of the terms "degree" and "timing" when considering future interest rate adjustments.And these few changes in words have actually to some extent signaled a change in the pace of easing.

As we approach 2025,Federal Open Market Committee(FOMC) rotational turnover of voting members will also take place, and the addition of new members may increase resistance to further rate cuts to some extent.

The Fed holds eight interest rate meetings each year, where all 12 regional Fed presidents discuss and debate monetary policy, but only 7 Fed governors and the New York Fed president have fixed voting rights, with the remaining 11 regional Fed presidents having voting rights on a rotating basis once a year.

Analyst Oscar Munoz of TD Securities said: This opens the door for more dissenting votes next year,Because the members soon to gain voting rights are more hawkish.

The interest rate cut decision on Wednesday was quite controversial, with 4 out of 19 policymakers objecting, including Cleveland Fed President Hammack directly casting a dissenting vote.

Hammack will step down from the voting sequence next year,to be replaced by Chicago Fed's Gulsbee.As a dovish official, Gulsbee believes next year's policy interest rates need to be significantly lowered to avoid excessive slowdown in the labor market.

However,The other two new voting members - St. Louis Fed President Musallam and Kansas City Fed President Schmidt - tend to take a hawkish stance.They will replace Atlanta Fed President Bostick and San Francisco Fed President Mardel, who are seen as neutral.

The final new voting member is Boston Fed President Collins, who will succeed Richmond Fed President Balkin to become a rotating voter at the Fed in 2025.

Currently, Wall Street generally believes that as the Federal Reserve balances inflation risks with a flexible economy,Caution is the current theme.

According to current predictions from major Wall Street banks, it is expected that interest rates will be cut 2-3 times next year.

Among them, Deutsche Bank is the most cautious, as the bank believes that skipping the rate cut at the January meeting may turn into an extended pause in 2025. We continue to believe that the nominal neutral interest rate is around 3.75%, and it is necessary for the Committee to maintain constraints relative to that level. Therefore, we reiterate our view,that the federal funds rate may remain above 4% next year, with the basic scenario being no further rate cuts.

Barclays has raised its forecast for US inflation next year, while lowering expectations for GDP. They predict,the number of interest rate cuts by the Federal Reserve in 2025 is expected to decrease from the previously forecasted 3 times to 2 times, each 25 basis points.

Nomura economists expect,In 2025, the Federal Reserve will only cut interest rates once.and forecast to raise the terminal interest rate by 50 basis points to 3.625%.

Nick Timiraos, a journalist from The Wall Street Journal known as the "Federal Reserve's megaphone," recently published an article stating that the era of ultra-low interest rates in the USA may have come to an end.If the Federal Reserve believes the neutral interest rate has risen, it may stop cutting interest rates for a considerable period of time.

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