Will revamped Fed stay cautious on cuts or bow to political pressure?
It was a newsworthy year for the Federal Reserve in 2025, even when it wasn’t making any moves at all.
The year started with eight months of rate inaction, as the central bank cited unexpected tariffs as a reason to wait. That drew the ire of President Donald Trump and his administration.
As the job market began to soften later in the year, the Fed ended the year with three straight 25-basis-point rate cuts. This also drew the ire of the Trump administration, which called it too small and too late.
What will 2026 have in store for the central bank? One thing is for sure: there will be changes. The most significant change will be in May, when Fed chair Jerome Powell wraps up his term as chair. But despite the change in leadership, one economist doesn’t think it will bring a chaotic shift at the Fed.
Sam Williamson (pictured top), senior economist at First American, doesn’t believe the central bank will change its approach dramatically under a new chair.
“Even with leadership changes in 2026, the Fed’s overall approach is unlikely to shift dramatically,” Williamson told Mortgage Professional America. “While the chair plays a key role in shaping discussions and setting expectations, the chair is ultimately just one vote on a larger committee. New members may influence the tone of debate, but the Fed’s dual mandate will keep policy anchored to its core objectives of full employment and price stability.”
A new-look FOMC board
While Powell will no longer be chair after May, unless he resigns from the Federal Reserve, he will remain a voting member of the Federal Open Market Committee (FOMC) through January 31, 2028. He will be surrounded by many new faces on the voting board in 2026.
One seat on the Board of Governors that is expiring is the one held by Stephen Miran, who stepped into the role this year. He could be renewed, but he holds the only guaranteed open seat on the Board of Governors before Powell’s term ends. Trump may decide to use Miran’s seat to get his next chair pick on the FOMC board, like Kevin Hassett or Kevin Warsh.
Trump could get another open seat if the Supreme Court decides that he has the authority to fire BOG member Lisa Cook, whom the administration accused of mortgage occupancy fraud.
With so many potential changes, many pundits have wondered if the central bank could become too influenced by the president. Williamson believes that other members of the FOMC board, including the regional presidents, would keep that from happening.
“Presidential appointments can influence the Fed’s tone, but the White House does not control the entire committee,” Williamson said. “Only seven governors, including the chair and vice chairs, are appointed by the president and confirmed by the Senate, with staggered terms of up to 14 years, meaning most will remain beyond 2026.
“The other voting members, the presidents of the regional Federal Reserve Banks, are selected by their boards. Regional presidents have historically leaned more hawkish—prioritizing inflation control—though this varies by individual and economic context. That structure makes aggressive rate cuts unlikely unless the economic data clearly justify them.”
Four regional Federal Reserve Bank presidents will rotate off the FOMC. Presidents representing Boston, Chicago, St. Louis, and Kansas City will be replaced by presidents from Cleveland, Minneapolis, Dallas, and Philadelphia, as seen in the chart below.
Proceed with caution
Williamson believes that the central bank will proceed more carefully in 2026 than it did in 2025. He expects the Fed will make one or two rate cuts in the new year.
“The Federal Reserve is likely to proceed more cautiously in 2026 than it did in 2025,” he said. “While the unemployment rate continues to steadily climb, inflation remains firmly above the Fed’s 2% target, leaving policymakers balancing their goals of supporting employment and maintaining price stability. The most likely path next year is one, perhaps two, additional cuts.”
While Williamson sees one or two cuts as the likely path for the Fed in 2026, he believes they will closely watch employment and inflation numbers and adjust that path as needed.
“The outlook remains highly data-dependent,” Williamson said. “Shifts in inflation, labor market conditions, or broader economic trends could alter the pace and timing of policy changes. For now, policy would likely be somewhat restrictive, firm enough to push inflation lower, but gradual enough to preserve flexibility if growth weakens.”
Roby Robertson of LoanLogics shares insights on the future of Fannie Mae and Freddie Mac as 2026 approaches, weighing privatization, government backing, and the potential introduction of 50-year mortgages.https://t.co/f5th3Iz7F2
— Mortgage Professional America Magazine (@MPAMagazineUS) December 15, 2025
Of course, the Fed isn’t the only thing for brokers to watch entering the new year. Williamson said they should keep an eye on a forecasted slowdown in consumer spending and a potential increase in inflation.
“A sharper-than-expected slowdown in consumer spending, business investment, or payroll growth could heighten recession fears, driving investors into Treasurys, and pulling yields and mortgage rates lower,” he said. “Conversely, a renewed acceleration in inflation, especially if it spreads into stickier service sectors, could push the Fed to adopt a more hawkish stance and reduce the pace or size of the cuts markets anticipate—limiting how far mortgage rates can fall next year.”
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