Austan Goolsbee Out: 2026 Fed Rotation Turns Dovish as Trump Gets His Wish

Austan Goolsbee and three hawkish Fed presidents exit FOMC voting in 2026, replaced by Anna Paulson and Neel Kashkari (dovish) plus Beth Hammack and Lorie Logan (hawkish). Powell’s term ends May 2026, with Trump likely nominating dovish successor, increasing rate cut probability if employment weakens.

FOMC Voting Member Rotation: Who Exits, Who Enters?

Under the FOMC’s routine rotation mechanism, four regional Federal Reserve Bank presidents will step down from voting seats at the start of 2026. The departing members—Susan Collins of the Boston Fed, Austan Goolsbee of the Chicago Fed, Alberto Musalem of the St. Louis Fed, and Jeff Schmid of the Kansas City Fed—are generally more hawkish, taking cautious stances on rate cuts.

Susan Collins has emphasized that current monetary policy remains restrictive, which is appropriate at this stage. Alberto Musalem believes there is limited room for further rate cuts. Jeff Schmid stated that inflation remains too high and policy is only moderately restrictive—he even dissented on the most recent rate cuts. Austan Goolsbee, regarded as centrist with hawkish tilt, opposed the December rate cut but also stated he expects more rate cuts in 2026 than most colleagues.

Departing Hawkish Members

Susan Collins (Boston Fed): Emphasizes appropriateness of restrictive policy stance

Austan Goolsbee (Chicago Fed): Centrist-hawkish, opposed December cut but expects more 2026 cuts

Alberto Musalem (St. Louis Fed): Believes limited room for further rate cuts remains

Jeff Schmid (Kansas City Fed): Dissented on recent cuts, views inflation as too high

The four new voting members taking their place include Anna Paulson of the Philadelphia Fed, Beth Hammack of the Cleveland Fed, Lorie Logan of the Dallas Fed, and Neel Kashkari of the Minneapolis Fed. This group shows more balanced composition, with two members leaning dovish and two leaning hawkish.

Anna Paulson has made clear she is more concerned about weakening job market than lingering inflationary pressures, pointing out that price increases driven by tariffs will gradually subside. This indicates openness to pre-emptive rate cuts. Neel Kashkari also supports further rate cuts, believing tariff shocks are one-off events and labor market is cooling.

By contrast, Beth Hammack calls for caution regarding recent inflation improvement and advocates maintaining slightly restrictive policy until convinced inflation can sustainably recede. Lorie Logan warns that further rate cuts may push policy into overly loose territory, especially as core services inflation remains stubborn.

Overall, this rotation will tilt the FOMC slightly more dovish or centrist in the new year, though the extent is limited and actual economic data will still dominate decision-making rather than mere ideological preferences.

Senior Leadership Transition: Greater Uncertainty Ahead

Compared to routine rotation of voting members, the Fed’s senior leadership may face even more profound changes. Current Chairman Jerome Powell’s second four-year term will end in May 2026, giving President Trump a window at year’s start to nominate more dovish successor.

Currently, widely discussed potential candidates include Kevin Hassett, Kevin Warsh, and Chris Waller. Of these, Hassett and Warsh are seen as advocates of more aggressive easing policies, emphasizing growth risks and political priorities. Waller, though historically hawkish, may adjust his stance to fit new environment if Trump pushes for faster rate cuts.

Another key change: Trump-appointed Governor Stephen Moore’s term ends January 31, 2026. During his brief Fed tenure, Moore often dissented in favor of aggressive 50 basis point rate cuts, making him one of the most dovish voices on the Board. His successor is likely to further strengthen dovish tilt. Combined with potential new chairman, this could shift the seven-member Board of Governors toward majority favoring faster monetary policy normalization, even if regional presidents continue advocating caution.

Potential New Leadership Lineup

Chairman Nominee: Kevin Hassett or Kevin Warsh (both significantly more dovish than Powell)

Stephen Moore Replacement: Likely dovish appointee following Moore’s aggressive cut advocacy

Board of Governors: Potential dovish majority if Trump appointments accelerate

Timeline: Powell exits May 2026, creating 5-month transition window

This leadership transition represents potentially more significant policy shift than routine voting member rotation. While regional presidents rotate predictably, chairman appointments occur rarely and wield disproportionate influence over policy direction and market communication strategies.

Policy Outlook: Easing Cycle May Pause, Then Accelerate

Despite the dovish shift brewing, the Fed’s easing cycle may still temporarily pause at the start of 2026 to observe economic data trends. The December 2025 Federal Open Market Committee meeting signaled caution, with policymakers expressing concern about inflation’s stubbornness above the 2% target and the economy’s continued resilience despite restrictive policy.

However, with more dovish new chair, the pace of rate cuts could accelerate significantly mid-year, especially if employment data continues showing deterioration signs. The unemployment rate has crept upward in recent months, and wage growth has moderated—trends that dovish members like Anna Paulson and Neel Kashkari view as justification for pre-emptive easing to prevent labor market damage.

The Fed’s policy path will depend on inflation decline pace, labor market resilience, and external shock impacts. However, a more dovish lineup undoubtedly increases likelihood of Trump achieving his rate cut goals. Trump has repeatedly pressured Powell to cut rates more aggressively, arguing that lower rates would boost economic growth and stock market performance. The incoming leadership rotation provides Trump the Fed composition most aligned with his economic preferences since taking office.

Three Potential 2026 Rate Cut Scenarios

Hawkish Hold (1 cut): If inflation remains sticky and employment stays strong, new leadership may maintain restrictive stance with single 25bp cut

Moderate Easing (2-3 cuts): Base case scenario with balanced inflation decline and moderate employment softening triggering 50-75bp total cuts

Aggressive Dovish (4+ cuts): If employment data deteriorates rapidly and inflation falls toward 2% target, new dovish leadership could deliver 100bp+ cuts

Currently, traders are pricing scenarios across this entire range, creating significant rate volatility and positioning opportunities. Bond markets have oscillated between expecting aggressive easing and pricing more cautious approaches, with Fed communications failing to provide clear forward guidance given leadership transition uncertainty.

Market Implications: Asset Class Reactions

The dovish rotation and potential leadership change carry significant implications across asset classes. Equity markets generally benefit from rate cuts as lower borrowing costs boost corporate earnings and make stocks more attractive relative to bonds. The S&P 500 historically rallies during Fed easing cycles, with technology and growth stocks particularly sensitive to interest rate changes.

Bond markets face more complex dynamics. Long-term Treasury yields may decline as rate cut expectations increase, boosting bond prices. However, if aggressive easing raises inflation concerns, long-end yields could paradoxically rise despite near-term cuts. The yield curve steepening—short rates falling faster than long rates—would represent classic easing cycle pattern.

Cryptocurrency markets typically respond positively to dovish Fed pivots. Bitcoin and altcoins rallied significantly during 2020-2021’s aggressive monetary expansion, as lower rates reduce opportunity cost of holding non-yielding crypto assets. The incoming dovish Fed composition could provide tailwinds for crypto markets, especially if combined with Trump administration’s pro-crypto regulatory stance.

Currency markets will see U.S. dollar pressure if Fed cuts more aggressively than other major central banks. However, if European Central Bank and Bank of Japan also ease policy, relative interest rate differentials may remain stable, limiting dollar movement. Gold typically benefits from lower real interest rates, making the dovish Fed rotation potentially bullish for precious metals.

Trump’s Rate Cut Dream: Political Economy Intersection

President Trump has made clear his preference for lower interest rates, frequently criticizing Powell for maintaining restrictive policy too long. The May 2026 end of Powell’s chairmanship provides Trump the opportunity to appoint a Fed chief more aligned with his economic vision. This political-monetary policy intersection creates unusual dynamics where Fed independence meets presidential pressure.

Trump’s economic advisors argue that lower rates would stimulate growth, boost employment, and support asset prices—all politically beneficial outcomes. Critics counter that politically-motivated monetary policy risks inflation resurgence and central bank credibility damage. The incoming dovish rotation, while routine under Fed rules, nonetheless advances Trump’s policy preferences without requiring overt political intervention.

If Trump nominates Kevin Hassett or Kevin Warsh as Powell’s successor, market expectations for aggressive 2026 easing would intensify immediately. Both candidates have publicly advocated for more growth-focused monetary policy, though they would face confirmation hearings where senators would probe their independence from political pressure.

The stakes extend beyond domestic politics. Fed policy drives global financial conditions through dollar’s reserve currency status and U.S. Treasury markets’ benchmark role. A Fed perceived as politically compromised could trigger capital flight, dollar weakness, and financial stability concerns that ironically undermine the growth objectives motivating the dovish turn.

What This Means For Investors

The 2026 Fed rotation and leadership transition create both opportunities and risks requiring active portfolio management. Fixed income investors should consider duration positioning as rate cut expectations evolve—longer-duration bonds benefit more from declining yields but carry greater volatility risk if inflation surprises upward.

Equity investors might favor rate-sensitive sectors like real estate investment trusts (REITs), utilities, and growth technology stocks that benefit disproportionately from lower discount rates. However, these same sectors carry heightened vulnerability if the dovish pivot proves premature and inflation forces policy reversal.

Cryptocurrency holders should monitor Fed communications for signals about easing pace and timing. Dovish surprises could trigger rallies, while hawkish holds may pressure risk assets. The correlation between Fed policy and crypto prices has strengthened as institutional participation increased, making monetary policy more relevant to digital asset valuations.

FAQ

Who is Austan Goolsbee and why does his exit matter?

Austan Goolsbee is Chicago Fed President stepping down from FOMC voting in 2026. As centrist with hawkish tilt who opposed December rate cut, his exit alongside three other hawks tilts the committee more dovish, increasing rate cut probability.

When does Jerome Powell’s term end?

Powell’s second four-year term as Fed Chairman ends May 2026, giving Trump opportunity to nominate more dovish successor aligned with his preference for aggressive rate cuts.

Who are the new 2026 FOMC voting members?

Anna Paulson (Philadelphia Fed, dovish), Beth Hammack (Cleveland Fed, hawkish), Lorie Logan (Dallas Fed, hawkish), and Neel Kashkari (Minneapolis Fed, dovish) join the voting rotation, creating more balanced but slightly dovish-leaning composition.

How many rate cuts will the Fed make in 2026?

Market pricing ranges from 1 to 4 cuts (25-100 basis points total). Base case expects 2-3 cuts (50-75bp), but actual path depends on inflation and employment data plus new leadership’s policy preferences.

What does dovish Fed mean for crypto markets?

Dovish Fed policy typically supports crypto as lower rates reduce opportunity cost of holding non-yielding assets like Bitcoin. The 2020-2021 aggressive easing cycle coincided with major crypto bull market.

Will Trump get the rate cuts he wants?

The dovish FOMC rotation and potential dovish chairman nomination increase probability significantly, though actual cuts still depend on economic data justifying policy easing without reigniting inflation.