Federal Reserve to Slash Workforce by 10% in Efficiency Push
May 16, 2025 | Washington, D.C. – In a move aimed at streamlining operations and aligning with broader government efficiency efforts, Federal Reserve Chair Jerome Powell announced plans today to reduce the central bank’s workforce by approximately 10 percent over the next several years. The initiative will primarily rely on attrition and a voluntary deferred resignation program, rather than involuntary layoffs, and is designed to ensure the Fed remains “right-sized” to fulfill its core mandates without excess overhead Reuters.
A Periodic Review of Resources
In an internal memo circulated Friday to the Federal Reserve Board’s roughly 3,100 Washington-based employees, Chair Powell emphasized that periodic staffing reviews are a healthy practice for large organizations. Drawing parallels to similar efficiency drives in the 1990s, Powell wrote:
“Experience here and elsewhere shows that it is healthy for any organization to periodically take a fresh look at its staffing and resources. I believe it is time to do it again, in that same conscientious and deliberate spirit.”
—Jerome Powell, Federal Reserve Chair Reuters
The memo makes clear that the Fed will not resort to mass layoffs. Instead, it will offer a Voluntary Deferred Resignation Program for Board staff who are eligible for full retirement by December 31, 2027. Those who participate can effectively retire early, with their positions held open until the end of 2027, after which the roles may be consolidated or eliminated. Any additional reductions will come through normal attrition—vacancies arising from resignations, retirements, or other departures will simply not be refilled.
Independence, Yet Accountability
Although the Federal Reserve operates independently of the executive branch and does not require Congressional approval for its budget, Powell stressed the importance of being prudent stewards of public resources. The initiative echoes President Trump’s broader push for government efficiency—most notably through the newly created “Department of Government Efficiency” (DOGE) led by Elon Musk—while preserving the Fed’s nonpolitical, data-driven mission Politico.
Economists and market participants view the announcement as a sign that the Fed is conscious of reputational risks amid public scrutiny over inflation and interest-rate decisions. “The Fed wants to demonstrate that it is both independent in its policy judgments and responsible in its operating budget,” said Claire Jones, senior economist at Capital Economics. “Cutting headcount by 10 percent makes a statement about fiscal discipline without undermining its ability to execute monetary policy.”
Balancing Efficiency with Expertise
The Fed’s workforce—approximately 24,000 employees across the Board of Governors, 12 regional Reserve Banks, and other entities—expanded in recent years to accommodate new post-crisis regulation, pandemic response, and real-time data analytics. However, some functions, particularly in technology and back-office operations, have since achieved greater efficiency through automation and consolidation.
By focusing reductions on Washington Board staff, the Fed targets roles that support research, rule-making, and centralized services. Regional staffs, which handle bank supervision, cash distribution, and regional economic analysis, will see more modest changes. According to a Fed spokesperson, the aim is to “consolidate functions where appropriate, modernize business practices, and ensure that we are right-sized and able to meet our statutory mission” Fox Business.
Critics caution that cutting too deeply could strain the Fed’s ability to monitor financial stability risks. “You don’t want to hollow out expertise just when the global economy is navigating trade tensions, elevated debt levels, and complex digital currencies,” warned Douglas Elliott, a fellow at the Brookings Institution. Nevertheless, the Fed’s choice of voluntary programs and natural attrition is designed to mitigate sudden knowledge gaps.
Voluntary Deferred Resignation Program
Under the newly announced program:
- Eligibility: Board of Governors employees who qualify for full retirement by December 31, 2027.
- Incentive: Participants will begin receiving retirement benefits immediately but remain on payroll until the end of 2027, providing a bridge that eases transition.
- Outcome: Positions held open through 2027 will be evaluated for consolidation, reorganization, or elimination based on evolving needs.
A Fed official noted that the structure mirrors a 1997 initiative that successfully reduced staffing by approximately 5 percent over two years, without disrupting core operations. “That program demonstrated how targeted voluntary incentives can achieve meaningful cost savings while retaining institutional knowledge,” the official said on background.
Political and Market Reactions
News of the staff reduction was met with largely positive reactions in financial markets. The S&P 500 rose 0.4 percent on Friday, with investors interpreting the Fed’s efficiency drive as a sign of prudent management during a period when the central bank’s policy decisions are under intense scrutiny Axios.
On Capitol Hill, Republican lawmakers applauded the move as consistent with calls for government downsizing. Senator Pat Toomey (R-PA), a former Fed Bank president, stated: “It’s encouraging to see the Fed taking these steps voluntarily. It reinforces their commitment to accountability and mirrors the responsible budgeting we need across all federal agencies.”
Democrats, while supportive of the Fed’s independence, cautioned against excessive cuts. Representative Abigail Spanberger (D-VA), a member of the House Financial Services Committee, said: “We must ensure the Fed retains the expertise necessary to safeguard our economy, especially with looming threats like cyber-attacks, climate risks, and global financial imbalances.”
Looking Ahead: Implementation and Oversight
Implementation will begin in the coming months, with detailed guidelines and enrollment windows to be communicated to eligible employees by mid-June. The Fed’s budget office will track real-time headcount changes and report quarterly to the Board’s Finance Committee.
Powell concluded his memo by underscoring that, while “people are our greatest asset,” maintaining efficiency is integral to public trust. “We owe the public effective, high-quality, nonpolitical work,” he wrote, “and ensuring our staffing reflects our mission is part of that responsibility.” Reuters.
As the Federal Reserve embarks on this significant workforce reshaping, all eyes will be on how it balances leaner operations with the complex demands of modern monetary policy, financial regulation, and crisis management.
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