Forbes 2026 Interest Rate Forecast, Who Decides the Direction of the Federal Reserve?

Forbes

2025-12-01 21:31:16

Collection

The expectation of interest rate cuts is rising, and economic data remains the core variable.

Original Title: What To Expect For Interest Rates In 2026

Original Author: Simon Moore, Forbes

Original Translation: Peggy, BlockBeats

Editor’s Note: As the market bets on a "new Federal Reserve Chair + a new round of interest rate cuts" in 2026, the path of U.S. interest rates has once again become a key variable in global asset pricing.

CME futures indicate that the federal funds rate may drop to around 3% in 2026, down from the current range of 3.75%--4%, with major cuts likely concentrated in the first half of the year. However, with inflation not fully back to target and signs of weakening employment, the policy outlook remains uncertain. Although the Trump administration is expected to appoint a new chair who leans towards easing, the operational mechanism of the FOMC ensures that the policy tone will still be dominated by economic data.

This article outlines the key interest rate meeting schedule, expected rate cut ranges, and policy dynamics for 2026, providing readers with a clear framework for understanding the direction of U.S. interest rates.

The following is the original text:

After the routine Federal Open Market Committee (FOMC) meeting held in Washington, D.C., Federal Reserve Chair Jerome Powell answered reporters' questions at a press conference. Despite pressure from President Donald Trump to cut rates, the U.S. central bank kept the federal funds rate unchanged at 4.25%---4.5%.

According to the CME FedWatch tool's pricing of interest rate futures, the market generally expects a short-term rate decline cycle in 2026 under the backdrop of a "new Federal Reserve Chair," with the FOMC likely focusing on the rate cut path during its eight meetings throughout the year.

Before that, the FOMC will hold its last meeting of the year on December 10, 2025, where the market sees a slight possibility of a rate cut, but the chance of maintaining the current rate is also significant.

Interest Rate Path in 2026

According to current pricing, the federal funds rate is expected to drop to around 3% by December 2026, below the current range of 3.75%--4%.

However, the interest rate outlook remains highly uncertain: in more extreme market estimates, rates could drop as low as 2% or remain at the 4% level.

If the FOMC ultimately initiates rate cuts, the market believes that the main cuts may be concentrated in the first half of 2026. In contrast, Federal Reserve officials themselves are more cautious in their predictions for the 2026 interest rate level, with most forecasts still expecting rates to remain above 3%. However, these predictions were made in September and will be updated again in December.

2026 FOMC Meeting Schedule

While the Federal Reserve can adjust rates at any time in an economic emergency, normal years typically follow a set schedule of eight meetings.

The interest rate meetings in 2026 will be held on the following dates: January 28, March 18, April 28, June 17, July 29, September 16, October 28, and December 9.

Starting in March, the FOMC will update its Summary of Economic Projections (SEP) at alternate meetings.

New Chair May Push for Lower Rates

President Trump is expected to nominate a new Federal Reserve Chair in 2026 who is more supportive of a "rate-cutting orientation." The prediction market (such as Kalshi) currently sees Kevin Hassett as the most likely candidate.

This means that interest rate policy in 2026 may receive additional momentum. For example, Stephen Miran, appointed by Trump in 2025, has repeatedly leaned towards a more aggressive rate-cutting stance in votes.

However, aside from the chair selection, the overall voting structure of the FOMC will continue its existing pattern, meaning that monetary policy will not undergo a drastic shift due to a new chair.

Economic Data Remains a Core Variable

Ultimately, the Federal Reserve's decisions will still be driven by economic data.

Currently: inflation is slightly above the 2% target, but there are no signs of it spiraling out of control; the unemployment rate has risen, but not to an alarming level.

In this environment, the FOMC is likely to gradually lower rates. If the unemployment rate significantly worsens, the pace of rate cuts may need to be increased; conversely, if inflation unexpectedly rebounds, the Federal Reserve may slow its adjustment pace. However, the latter scenario currently has a low probability of occurring.

The most closely watched indicator right now is employment data. Some officials believe the labor market is slowing, which could drag down the overall economy, suggesting that rates should be lowered in advance; others believe that the employment softening does not pose a real risk.

Employment data will continue to reveal which side's judgment is closer to reality in 2026.