The Federal Open Market Committee (FOMC), which sets interest rates, will rotate four new voting members next year, three of whom are considered hawks.
New voting members in 2025 will include Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee, St. Louis Fed President Alberto Musalem, and Kansas City Fed President Jeffrey Schmid.
According to data from InTouch Capital Markets, Goolsbee is the only dove among the four. The company lists Collins and Musalem as mild hawks, while Schmid is considered a moderate hawk.
Goolsbee stated on December 20 that recent economic data has made him slightly more cautious about the interest rate path for 2025, as the recent economic data has brought "a bit more uncertainty" and noise.
He stated: "I have always said that the overall trend is a significant decline in inflation. I believe we are on the path to a 2% level, and there is still a possibility of a significant decline in interest rates in the next 12 to 18 months. Whether it happens three months earlier or three months later, I don't think that is the most important thing."
The latest Summary of Economic Projections (SEP) released by the FOMC on December 18 indicates that members expect the pace of rate cuts to slow down next year and beyond due to persistent inflation.
Given that the benchmark federal funds rate is 4.25% - 4.5% at the end of this year, the median forecast in the latest SEP indicates a 50 basis point cut in 2025, down from the previously expected 100 basis points.
The neutral policy interest rate is expected to decrease to 3.4% and 3.1% in 2026 and 2027, respectively.
Meanwhile, the FOMC expects the PCE for the entire year of 2025 to reach 2.5%, and then decline to 2.2% and 2% in 2026 and 2027, respectively.
Additionally, the unemployment rate is expected to remain at 4.3% by 2027.