First American economist predicts when the Fed will lower rates again
The Federal Reserve ended 2025 with three straight rate cuts after holding rates steady for the first eight months of the year.
With the calendar turned to 2026, all eyes are on the central bank again for Wednesday’s rate decision.
It won’t just be the decision that everyone will be keeping an eye on. Fed chair Jerome Powell’s comments will draw extra attention, as it will be his first post-Fed comments after announcing he was under investigation by the Department of Justice.
Not only that, but Powell will only have two more FOMC meetings after Wednesday before his term as chair ends in May. While Powell’s comments will set the stage for his final few months, one senior economist believes the rate decision will bring with it little drama.
Sam Williamson (pictured top), senior economist at First American, agrees with the majority of his fellow economists who predict the central bank will break its cut streak by holding rates on Wednesday.
“The Federal Reserve is likely to hold rates steady at the first meeting of the year after delivering three consecutive cuts at the end of 2025,” Williamson told Mortgage Professional America. “A pause would give policymakers time to assess how those cuts are filtering through the economy and allow more time for shutdown‑related data distortions to clear.”
Cloudy data and disagreements
The official government data, which the Fed relies on to make rate decisions, still hasn’t caught up after the government shutdown in late 2025. Williamson said that it should finally catch up soon, which would allow the central bank to have a better handle on the state of the economy. That is, of course, assuming there isn’t another shutdown at the end of this week.
“Clarity should gradually return over the next few months as shutdown-related disruptions and technical distortions fade,” Williamson said. “Still, January is likely too early for policymakers to put full weight on the latest readings, supporting a cautious ’wait-and-see’ stance at next week’s meeting.
“By March, the Fed should have several months of cleaner inflation and jobs data in hand, giving the committee more confidence on whether recent trends are signal or noise. If that cleaner data confirms continued disinflation alongside a cooling labor market, it will strengthen the case for resuming gradual cuts and continuing the move back toward neutral.”
Of course, what the actual neutral rate is has become a growing point of contention between Fed governors. That fact, combined with a stabilizing jobs market, likely leads the Fed to hold rates.
“With the unemployment rate showing recent signs of stabilization—and with widening divisions within the committee over how quickly to move rates back toward neutral—the Fed likely won’t have a strong case for a fourth straight cut,” he said. “That said, a March cut remains a possibility, especially if labor market conditions soften meaningfully over the remainder of the first quarter.”
A new-look FOMC
Of course, with a new year comes new regional governors, each with the chance to cast a vote on rate decisions. Williamson doesn’t see the switch having a major impact on the Fed board's overall path.
“The rotation of regional Fed presidents isn’t likely to meaningfully shift the central bank’s appetite to cut rates,” he said. “Logan, Kashkari, and Hammack have all expressed a desire for a higher bar for further easing, while Paulson’s focus on labor market cooling adds a modest dovish counterweight. Even so, their collective views broadly resemble those of the officials they replace.”
Since the Board of Governors and the New York Fed exert significant influence over the FOMC, Williamson believes the general sentiment will remain in favor of lowering rates when possible. However, the new members will likely force a higher threshold for future easing.
“And because the core policy direction will continue to be shaped by the Board of Governors and the New York Fed—who tend to lean a bit more dovish—the bias toward additional easing should remain intact,” he said. “The net effect is likely a slightly higher threshold for near-term cuts, keeping easing on the table this year, but with more risk of pushback if inflation progress isn’t clearly sustained.”
Williamson believes patience will be the name of the game for the Federal Reserve in the early parts of 2026. While a March cut isn’t off the table, the next rate cut might not come until the new chair takes over for the June meeting.
“While the balance of risks still tilts toward additional easing, the early-year mix of data points to a slower cadence in 2026—potentially just one or two cuts by year's end rather than a steady sequence,” he said. “The unemployment rate edged lower in December, reducing the urgency to provide immediate labor-market support, even as overall employment growth remains tepid.
“Inflation, meanwhile, continues to drift back toward the Fed’s 2% goal, even after allowing for shutdown-related quirks that may have temporarily pulled readings down. That combination gives policymakers room to be patient and wait for cleaner confirmation before moving again. A March cut remains possible, but late spring or early summer looks more likely for the next cut.”
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