- The Fed faces leadership turnover, legal battles, and shifting voting dynamics in 2026
- Policymakers are signaling a pause on rate cuts until at least spring
- Markets expect limited easing next year amid deep internal Fed divisions
The new year is shaping up to be a turning point for the Federal Reserve, with leadership changes, political pressure, and slowing rate cuts all colliding at once. From who controls the Fed to how quickly borrowing costs can fall, 2026 could look very different from the year just passed. For markets, homeowners, and borrowers, the uncertainty is already starting to show.
Leadership Changes Add Fresh Uncertainty
Fed Chair Jerome Powell’s term expires in May, and President Donald Trump is expected to announce his replacement in early January after narrowing the field to a short list. Before stepping down, Powell will oversee three more FOMC meetings, but the makeup of the committee will begin changing almost immediately.
Starting in January, four new regional Federal Reserve presidents will rotate onto the voting panel, while others step aside. At the same time, Fed Governor Stephen Miran, a temporary Trump appointee known for favoring aggressive rate cuts, will see his term expire at the end of the month. Trump could reappoint him, or use the opening to install his preferred future chair.
Another wildcard is Fed Governor Lisa Cook, whose position is now tied up in a Supreme Court case after Trump moved to remove her. Whether Powell stays on as a regular governor after his chairmanship ends, or fully exits the Fed, remains unresolved.
Political Pressure Meets a Cautious Fed
The changes follow a year of unusual politicization at the central bank. Throughout 2025, Trump and his allies repeatedly criticized Powell for keeping rates too high, arguing that lower borrowing costs were needed to stimulate growth and reduce government debt expenses.
Despite that pressure, the Fed held rates steady for the first five meetings of the year before finally cutting in September. Two additional cuts followed, bringing the benchmark rate down to a current range of 3.5% to 3.75%, about 75 basis points lower than a year earlier. Even so, policymakers have recently signaled that more cuts are unlikely before spring.
Minutes from the Fed’s December meeting revealed growing hesitation, with several members suggesting rates may need to stay unchanged for some time to ensure inflation is truly under control.
How Many Rate Cuts Are Markets Expecting?
Looking ahead to 2026, expectations vary widely. CME FedWatch data shows markets pricing in just two quarter-point cuts, which would take rates to roughly 3% to 3.25%. Prediction market Polymarket traders are slightly more optimistic, giving similar odds to two or three cuts.
Inside the Fed, projections are even more restrained. The latest dot plot shows a median expectation of just one rate cut in 2026, though individual forecasts range from hikes to deep cuts, highlighting sharp divisions among policymakers.
The January 29 FOMC meeting could offer early clues. With the annual rotation, new voters from Cleveland, Philadelphia, Dallas, and Minneapolis will join the panel, replacing presidents from Boston, Chicago, Kansas City, and St. Louis. While some known hawks are rotating off, others are stepping in, including Cleveland Fed President Beth Hammack, who has said she prefers holding rates steady until at least spring.
For now, economists like Realtor.com senior economist Jake Krimmel expect no change in January, despite recent inflation data cooling unexpectedly. Questions remain over whether temporary factors distorted those figures, keeping the Fed firmly in wait-and-see mode.
