After a bruising 2025, the Fed faces another slew of challenges in the year ahead

Core Insights - The Federal Reserve is entering 2026 facing significant political and policy challenges, including a new chair and a mixed economic environment that will complicate decision-making for policymakers [1][2] Economic Outlook - Following three consecutive interest rate cuts, the Federal Reserve is expected to adopt a cautious approach in 2026, with additional cuts likely being limited due to expectations of solid economic growth and persistent inflation pressures [2] - The year 2026 is anticipated to continue the extraordinary upheaval experienced in the previous year regarding the Federal Reserve [2] Political Context - President Donald Trump has previously threatened to remove Fed Chair Jerome Powell for not implementing interest rate cuts quickly enough, and there have been controversies surrounding the Fed, including cost overruns on a renovation project [4][5] - The potential removal of Governor Lisa Cook has also been a point of contention, with unproven allegations of mortgage fraud complicating the political landscape [5] Upcoming Events - A Supreme Court hearing is scheduled for January 21, 2026, to determine Trump's authority to remove Cook, followed by an interest rate vote by the Federal Open Market Committee [6] - Trump is expected to announce his choice for Fed chair in January, while Powell must decide whether to continue serving on the Board of Governors until January 2028 [6] Internal Dynamics - Recent rate votes have seen multiple dissents, and new regional presidents joining the Federal Open Market Committee are expected to have a hawkish stance, likely resisting further rate cuts [7]