What to Expect from the Federal Reserve in 2026

The Federal Reserve is heading into a tricky 2026, as officials debate the economy’s mixed signals and President Donald Trump is due to name a new Fed chair.

The central bank will likely lower rates a couple of times, some analysts say, as November’s jobs report brought the latest evidence of a weakening economy. One big question is whether Trump’s new Fed chair will push for aggressive action—and whether the 18 other members of the Federal Open Market Committee will be on the same page.

“The Chair does not have unbounded power to push the Committee in whatever direction he chooses,” wrote Matthew Luzzetti, chief U.S. economist at Deutsche Bank.

The FOMC’s votes in 2025 are instructive, with Fed Chair Jerome Powell struggling to get more hawkish Fed officials to support the Fed’s three rate cuts. The hawks’ presence on the FOMC will be felt again in 2026, with a couple of their most vocal members rotating onto voting spots.

Economic data is also “likely to look less supportive of lower rates by mid-2026,” Luzzetti wrote. The labor market has been softening—unemployment rose to 4.6% in November and employers added a lackluster 64,000 jobs. 

However, resilient consumer spending and investments in artificial intelligence are driving overall GDP growth. Solid growth next year should “mitigate downside risks to the labor market” and weaken the case for lowering rates, Luzzetti wrote.

It all adds up to what could be a heated debate at the Fed next year—and one that Trump’s Fed nominee may not be able to win.

“The Fed is a process, not a one-man show,” wrote Andrew Brenner, vice chairman at NatAlliance Securities.

Fed Chair Finalists

The biggest change is due to come soon, since Trump is finalizing his desired nominee for Fed chair. Powell’s four-year term ends in May.

One potential nominee is Fed Governor Chris Waller, a longtime Fed economist whom Trump picked to join the Fed in 2020. Two other options are the “two Kevins”: former Fed Governor Kevin Warsh, a fellow at the conservative Hoover Institution; or Kevin Hassett, a top White House economist.

Betting markets think Hassett is the most likely pick. Hassett is a Trump ally, raising some concern among investors that he’d abide by Trump’s call for aggressive interest rate cuts—even if they’re not needed. 

Investors value the Fed’s independence to decide interest rate policies based on the economic data, not any given president’s desire for lower rates to boost the economy.

“Nonetheless, we view him as a pragmatist, sensitive to … any erosion in the market’s perception of Fed independence,” Barclays economist Jonathan Millar wrote, adding that he would “ultimately need to win the hearts and minds” of others on the Fed.

Whoever Trump picks would need to get confirmation from the U.S. Senate, where Republicans hold a 53-seat majority. 

Votes for Fed chairs tend to occur with heavy bipartisan crossover. Powell got at least 80 votes in both of his nominations—when Trump originally named him Fed chair in 2017 and then again when President Joe Biden re-appointed him.

More Openings Ahead?

Trump may get a couple of openings next year on the Fed’s Board of Governors—the 7-member contingent of the FOMC that’s based in Washington, D.C. and is subject to Senate confirmation. 

Besides Powell, Trump has named three of the Fed’s seven-member board, with the remaining three being Biden appointees.

It’s unclear if Trump will indeed get those openings, but any slots give him a chance to put a clearer stamp on the Fed.

“It would be an understatement to suggest that the influence of the administration on the FOMC is sailing into uncharted waters as 2026 comes into focus,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

Trump has tried to oust Fed Governor Lisa Cook, a Biden appointee, but she’s remained on the Fed board as the legal battle continues. Next year could bring a resolution to that fight, with the Supreme Court set to hold oral arguments in January.

Powell will also have to decide whether he will leave the Fed in May 2026, when his four-year term as Fed chair ends. His term as a Fed board member ends in 2028, so he could choose to stay on the Fed even if he’s no longer its leader.

If he does stay on the Fed, it could be with an aim to “further reinforce the Fed’s independence,” Lyngen wrote. But it would also be nearly unprecedented since the last example occurred in 1948, Lyngen wrote, adding that the move “risks being viewed as more politically motivated.”

Regional Presence

Even if Trump names more Fed appointees, the FOMC also includes five other voting members every year.

Those voters are the heads of the 12 regional districts the Fed is broken into—a structure designed to bring local perspectives to the D.C.-based institution. Four regional Fed presidents rotate into voting spots every year, while the New York Fed president has a permanent FOMC vote.

In one move that eased some market worry, the Fed’s Board of Governors recently approved the regional Fed presidents’ appointments for the next five years. That will keep them in their rotating FOMC roles unless they resign.

That “clearly offsets any concerns” that some investors had about a Fed board with Trump appointees vetoing regional Fed presidents’ hires, Lyngen wrote.

“We’ll argue that the move enhanced the perception of the Fed’s independence,” Lyngen wrote.