Fed reshuffling is coming, but 2026 still looks divided
While the Federal Reserve remains divided over whether to cut interest rates for a third time ahead of its last policy meeting of the year, coming changes in the composition of the committee are beginning to give shape to the direction of policy next year.
Atlanta Fed president Raphael Bostic announced this week he will retire when his term ends in February, opening up a key seat that’s currently held by an interest rate hawk.
If the board of the Atlanta Fed appoints a replacement with a more dovish policy view, that could help tilt the interest rate-setting committee toward more rate cuts — though Atlanta doesn’t have a vote until 2027.
“Non-voting members can still meaningfully influence the Fed policy debate and decisions,” said Evercore ISI analyst Marco Casiraghi. “Not knowing anything about the next Atlanta Fed president, for now we think that Bostic’s decision to retire removes a hawkish voice and edges the FOMC fractionally more dovish in expectation.”
Bostic’s announcement comes as the Fed’s Board of Governors in Washington has to agree to the reappointment of all 12 of the regional Fed bank presidents to new five-year terms beginning March 1. That’s historically been a routine process, which occurs every five years and ends with the reappointment by a majority of the Fed’s board.
Questions have arisen about whether the Trump administration could try to influence that reappointment process.
A wildcard for the Fed’s composition is whether the Supreme Court rules in January that Fed governor Lisa Cook — a Biden appointee — can be fired by President Trump. If the Supreme Court rules in Trump’s favor, that would open another spot on the Fed’s board for the president to appoint a new governor whose views are more in line with his for lower interest rates. That person could also influence the affirmation of the 12 regional Fed bank presidents.
Cranes hang above the US Federal Reserve building as renovation work continues on the building in Washington, D.C., on Aug. 5, 2025. (JIM WATSON/AFP via Getty Images) ·JIM WATSON via Getty Images
But Benson Durham, head of global policy and asset allocation for Piper Sandler, said he doesn’t expect any “drama” or rate any impact of a “Trump majority” that would mold the rest of the Committee.
Durham said he struggles to imagine Fed governors telling regional Fed bank presidents, “‘So, I know we’ve been working alongside one another for some time now, but turns out you’re just not MAGA enough, and it’s 2026, so you’re out,’” he said.
Perhaps most consequential, Trump will nominate a replacement for outgoing Fed Chair Jerome Powell, whose term is set to expire in May. On the shortlist are current Fed governors Michelle Bowman and Chris Waller — both appointed by Trump during his first term — as well as former Fed governor Kevin Warsh, National Economic Council Director Kevin Hassett, and head of fixed income at BlackRock Rick Rieder. Any of those choices would likely put leadership in a more dovish position given that these candidates’ policy views lean toward lower interest rates.
“The strength of the institution is that it can handle changes in leadership, including chair, governors, and Federal Reserve Bank presidents, without disruption because the culture of the Fed is one in which all leaders focus on delivering the goals that the Fed has been given in the Federal Reserve Act,” said Loretta Mester, former Cleveland Fed president and adjunct full professor of finance at the University of Pennsylvania’s Wharton School. “I am hopeful that those chosen to lead will continue that culture, which has served this country very well.”
Anne Walsh, chief investment officer of Guggenheim Partners Investment Management, said she thinks that, no matter what happens, the composition of the Fed will become more dovish.
“That means we’re back to my concept of and belief in a much lower neutral rate going forward, which should be helpful for the … interest-sensitive parts of the economy, the lower-end consumer to some level, for example,” Walsh said at Yahoo Finance’s Invest event.
Next year will also bring the annual rotation of four regional Fed presidents. Each year, five of the 12 regional bank presidents get a vote — four rotate each year, and the fifth, the New York Fed, has a permanent vote. 2026 will see Cleveland, Dallas, Philadelphia, and Minneapolis Fed presidents come on as voting members, while Kansas City, Chicago, Boston, and St. Louis will rotate off.
All four of the current voting regional bank presidents have leaned hawkish.
Boston Fed president Susan Collins said this week that while she supported cutting interest rates at the last policy meeting, the bar for cutting rates further is “relatively high” and that it’s likely appropriate to hold rates at current levels for “some time.”
St. Louis Fed president Alberto Musalem said this week that he supported cutting rates at the last policy meeting, but that going forward “we need to proceed and tread with caution because I think there’s limited room for further easing without monetary policy becoming overly accommodative.”
He cautioned that inflation is still at 3%, and that interest rates right now are getting close to neutral — a level designed to neither spur nor slow economic growth. “I believe we need to continue to lean against above-target inflation while providing some support to the labor market,” he said.
Kansas City Fed president Jeff Schmid reiterated Friday that he thinks inflation is “still too high,” and that while tariffs are likely contributing to higher prices, his concerns are much broader than tariffs alone, including higher electricity and healthcare prices. He dissented against the Fed’s rate cut in September.
Meanwhile, Chicago Fed president Austan Goolsbee previously told Yahoo Finance that the threshold for cutting again is higher, noting that he’s nervous inflation has been above the Fed’s 2% goal for nearly five years and is trending in the wrong direction.
The regional Fed bank presidents coming on to vote next year also look like they could slant hawkish. While the addition of Philadelphia could bring moderation to the committee, Minneapolis Fed president Neel Kashkari has expressed reservations about cutting rates more, noting the resilience of the underlying economy. And both Cleveland Fed president Beth Hammack and Dallas Fed president Lorie Logan have made clear they’re more concerned about inflation and are hesitant to cut rates.
Those members could create a division next year.
“Next year, we can anticipate a more hawkish regional Fed composition alongside a more dovish board,” said EY-Parthenon chief economist Gregory Daco. “However, it is important not to oversimplify the situation by envisioning only two factions.”
Daco said he envisions three groups. He predicts the new Fed chair, plus Fed governor Bowman, and the governor set to replace Fed governor Stephen Miran, align with the dovish camp. He predicts Cleveland Fed’s Hammack, Minneapolis Fed’s Kashkari, and Dallas Fed’s Logan will fall into the hawkish camp. Finally, Fed governors Jefferson, Waller, Williams, Cook, and Philadelphia Fed president Anna Paulson would be in a more agnostic group.
Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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