When Rotation Meets Reappointment: The FOMC’s Hidden Power Shift

When Rotation Meets Reappointment: The FOMC’s Hidden Power Shift

• The reappointment of Regional Fed Presidents starts in December.
• The White House is pushing for approval changes.
• A change could make the policy outlook increasingly dovish.

Forget the rate cut debate; the real story is who gets to vote next year…

Last month, I broke down the Federal Open Market Committee. I highlighted the mix of doves (inclined to cut rates) and hawks (inclined to raise them). At the time, I asked whether the balance leaned toward another cut at next week’s meeting. The data pointed to more easing…

Now, with the year ending, the mix matters for another reason. The FOMC has twelve voters: seven governors with fixed terms and five regional Fed presidents. The New York Fed chief, who serves as vice chair, always votes. The other four rotate each year. That rotation can tip policy toward tighter or looser settings.

Reappointment of regional presidents usually goes unnoticed. It happens every five years, subject to approval by the Board of Governors. But 2026 is different. The White House has noticed that all regional presidents are up for renewal. Frustrated by high rates, the administration may try to influence the process.

Treasury Secretary Scott Bessent wants a requirement change. He says regional presidents should live in their districts for three years before approval. Under today’s lineup, three presidents set to vote next year could be replaced. Two are hawks. That shift would tilt policy even more toward easing, supporting a rally in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

Regional presidents don’t coast into another term. Every five years, all twelve face review. Terms expire together, in years ending in “1” or “6.” Each Reserve Bank must reassess its leader, weighing policy skill and public credibility.

The first call belongs to the local board of directors. Nonbanker directors — Class B and C — decide if their president deserves another term. They review performance, credibility, and communication. It’s not ceremonial. If a president hasn’t delivered, the board can say no. That local voice keeps regional input alive in a system often dominated by Washington.

The process doesn’t end there. The Board of Governors in D.C. has the final say, approving or blocking reappointment. This dual structure balances independence with accountability. Presidents also face mandatory retirement at 65, with limited extensions if appointed later. When vacancies open, boards often hire search firms to find candidates who can lead, shape policy, and speak publicly.

Yet here is the nuance in Bessent’s push…

Since 2022, seven of the twelve regional presidents are new: Susan Collins in Boston (2022), Lorie Logan in Dallas (2022), Austan Goolsbee in Chicago (2023), Jeffrey Schmid in Kansas City (2023), Alberto Musalem in St. Louis (2024), Beth Hammack in Cleveland (2024), and Anna Paulson in Philadelphia (2025). Of those, only Goolsbee lived in his district for more than three years, though Collins has deep roots in Massachusetts.

The others followed different paths. Logan worked at the New York Fed. Schmid ran the Southwestern Graduate School of Banking in Dallas. Musalem led Evince Asset Management in Arlington, VA. Hammack was a Goldman Sachs partner in New York. Paulson directed research at the Chicago Fed. None were based in their districts before appointment.

That matters because of next year’s voting rotation. Hammack, Logan, and Paulson are set to become FOMC voters. Hammack and Logan are hawks; Paulson is a dove.

Right now, nine of the twelve voting seats for 2026 are held by doves, one is neutral, and two are hawks. If Bessent’s push is successful, the White House could suggest more dovish replacements. That would shift the FOMC balance to eleven doves and one neutral — a clear tilt toward easing.

Current Fed officials who favor cuts have argued rates should drop to neutral sooner rather than later. We can estimate that level by looking at real rates (effective fed funds minus inflation)…

The latest data show an effective rate of 3.9% and inflation at 3%. That’s a spread of about 90 basis points. By that measure, the Fed could cut four more times before hitting neutral. But history matters: since 2000, the average real rate has been ‑0.6%. That suggests the Fed could ease six more times before it’s done.

At the end of the day, Bessent faces an uphill fight. The Fed already leans dovish. But if the White House reshapes the regional lineup, the policy outlook could grow even more favorable for easing in 2026.

That shift would lower borrowing costs for households and businesses, improve off‑balance‑sheet Treasury holdings for banks, and expand credit capacity. The result: stronger spending, firmer growth, and a steady rally in the S&P 500.

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