A Fresh Perspective FOMC’s 2025 Roster Has Some New Voters By Jim Reber, President and CEO, ICBA Securities It appears that the cost of funds has finally started to level off as the effects of the first rate cut take hold. While we in the financial services sector start thinking about monetary policy in the coming year, there’s a new wrinkle to consider. Many Fed-watchers, rate prognosticators, economists and even investors had been betting on substantially lower rates in 2025 for many months. It looked like the corner had been turned with the 50 basis-point (0.50%) cut to fed funds on Sept. 18. Almost immediately thereafter, persistently strong economic data caused members of the Federal Reserve Board to at least orally tamp down market expectations for aggressive cutting in the near future. The “wrinkle” is the makeup of the Federal Open Market Committee (FOMC) next year. The people who actually cast a vote for our central bank’s monetary policy are a subset of the entire Federal Reserve Board. The FOMC consists of 12 members from two separate groups. The seven governors — who are nominated by the U.S. president and confirmed by the Senate and include Chairman Jay Powell — vote at each of the meetings. The remaining five members are, most of the time, an annually rotating set of regional Federal Reserve district presidents elected by their constituents. New for 2025 Next year, the five regional bank presidents on the committee are: • John Williams, New York • Austan Goolsbee, Chicago • Susan Collins, Boston • Alberto Musalem, St. Louis • Jeff Schmid, Kansas City The New York Fed president is the only permanently-voting member in the group. The Fed’s open market operations, which is where rubber meets the road on interest rates, are conducted through the New York bank, hence the permanent spot on the FOMC. The other four are perhaps wild cards, at least as Fed-watchers are concerned. Susan Collins has voted for only one year since her election in 2022; the same goes for Austan Goolsbee in 2023. The other two have not yet voted, given their elections since 2022. So, these voters will have their words and actions very closely parsed for “dovish” or “hawkish” leanings relative to interest rates. But let’s not oversell the impact: The votes at the conclusion of the FOMC’s meetings are usually unanimous. I can’t think of the last time there was more than one dissenting vote. It’s also true that the other seven regional bank presidents who are not voters in a given year participate in the discussions and deliberations. Still, it’s unusual for the FOMC to have this number of voters with little or no track record. Tools in the Shed Now that we’ve had a refresher course, let’s talk about what the Fed can do regarding interest rates, which certainly have direct impact on community bank profitability. The most visible (and talked about) rate is fed funds, which is what financial institutions charge one another for overnight borrowings. The Fed controls that rate through the setting of reserve requirements; if it wants fed funds to drop, it decreases the level of reserves required in the system, thereby freeing up more money to be lent and invested. 24 | The Show-Me Banker Magazine
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