What to watch for during tomorrow's Fed rate announcement
The Federal Reserve has spent much of the last year battling two sides of a mandate, with neither side in a particularly good place.
Determining that the full employment part of the mandate was worse off at the end of 2025, the Fed cut rates in three straight meetings to end the year. Even as rates were cut, they recognized that inflation continued to be problematically high on the other side of their dual mandate.
As 2026 started, it appeared that both sides of the mandate might be improving a bit, with inflation a little more in check and some more positive jobs reports coming out.
Since then, the war in Iran has caused oil prices to jump, adding to inflation fears. Meanwhile, AI-related job losses are increasing, casting doubts on the overall health of the job market.
With all of that as the backdrop, the Federal Open Market Committee meets this week and will announce a rate decision on Wednesday. It is largely expected that they will hold once again, according to one veteran economist.
Sam Williamson (pictured top), senior economist at First American, said despite geopolitical turmoil and job market softening, the FOMC will likely stand pat.
“Policymakers appear poised to leave rates unchanged again this month,” Williamson told Mortgage Professional America. “Underlying conditions look little changed since the FOMC last met in January, with inflation still above the Fed’s target and the labor market softer, but not weak enough to force immediate action.
“Recent geopolitical events add another layer of uncertainty, particularly through energy prices, but not yet enough to alter the policy picture. That combination is likely to keep the Fed in wait-and-see mode until there is clearer evidence that inflation is moving sustainably lower.”
Elevated risks on both sides
That news will undoubtedly go over like a lead balloon at the White House, where President Donald Trump on Monday called for an emergency Fed meeting to slash rates and again criticized Fed chair Jerome Powell.
Williamson said with both sides of the mandate showing risks, the central bank is much more likely to continue a wait-and-see approach to rates.
“The Fed is dealing with a lack of progress rather than a clear deterioration, with elevated risks on both sides of its mandate,” Williamson said. “If one side looks slightly more pressing in the near term, it is still inflation, with the Fed’s preferred gauge of core inflation still running above 3% year-over-year and recent global events adding further uncertainty to the outlook.
“Labor-market data have been uneven to start the year, with January’s gains tempered by February’s losses, but on balance they still point to a job market that remains soft without a clear break lower. In that environment, policymakers are likely to stay cautious as they wait for clearer signals from the data.”
The most interesting parts of the meeting will likely be what Powell says afterwards and how each individual Fed governor votes. It is possible that Stephen Miran will write a formal dissent if the Fed holds rates again, but will any governors go with him?
As Amir Nurani, broker-owner at Left Coast Leaders, told Mortgage Professional America, it will also be interesting to see if any governors vote to raise rates due to the spike in inflation.
“The Fed is still very divided,” Nurani said. “We have some governors who want to keep rates unchanged. You have a couple of Fed governors who want to raise them.”
Hope for future cuts
When Kevin Warsh was chosen by Trump to succeed Powell as Fed chair, many assumed he would immediately come in this summer and start slashing rates. Nurani said he’s not sure that’s going to happen.
“What everybody is expecting is that the new Fed chair comes in, and rates automatically drop,” Nurani said. “The part that the public doesn't understand is that when a new Fed chair comes in, he's still got to convince all the other Fed governors, or at least the majority of them.”
CME FedWatch, which tracks the probability of changes to the Fed rate based on the 30-day Fed Funds futures prices, isn’t optimistic of a rate cut anytime soon. As of Monday afternoon, it showed rate holds as the likely outcome until the final FOMC announcement of the year on December 9.
Williamson concurs that a cut in the second half of the year seems more likely given the current market conditions.
“The second half of 2026 looks more plausible than a near-term move,” Williamson said. “For now, policymakers are still waiting for clearer signals from the data while navigating tariff-related inflation effects and newly elevated uncertainty around energy prices.
“If those pressures fade, the backdrop could become more supportive of easing later in the year. That timeline could move forward if growth slows more than expected, labor-market conditions weaken materially, or inflation shows clearer signs of cooling.”
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