The Fed faces a more difficult year than usual

Dual mandate? Try duel mandate, because for the Federal Reserve in 2026, seemingly every day brings with it a new battle. One battle after another, for the cinephile CFOs out there.

Add the potent blend of mounting political pressure at the Fed to a complex economic landscape marked by high inflation and a slowdown in hiring, and you have a uniquely challenging year ahead for decision-makers at the central bank.

“I’m hard-pressed to find a time, other than in the middle of a severe recession, or the middle of a financial crisis, where the operating environment for the Fed will be as complicated as in 2026,” Mark Zandi, chief economist at Moody’s Analytics, told CFO Brew.

The political backdrop at the Fed could inspire Federal Reserve Chair Jerome Powell to retain his Fed governor role, which extends to 2028, far past his May 15 term limit as chair, if he deems the central bank’s independence to be under threat, another potential complication at the institution.

“There’s so much going on already at the Fed that’s very unusual,” Jon Hilsenrath, a senior advisor to StoneX, a financial services company, told CFO Brew.

And for the C-suite, Hilsenrath added, the commotion ultimately impacts “key variables, including the outlook for inflation and the cost of capital.”

CFOs prepare. For many executives, the general strategy for 2026 seems to be, in Hilsenrath’s eyes: “I’m going to control what I can control, and that is my labor costs, my cost structure. I’ve got to protect my margin and insulate my margin, because anything could happen on any given day.”

That self-contained caution is likely a healthy response to what does (or doesn’t) happen at the central bank in 2026.

“We need to stay on our toes, in terms of how Fed policy, but even administration policies as a whole, might be affecting things,” Derek Tang, an economist at LHMeyer who forecasts Fed policy developments, told us, addressing CFOs. “A lot of it is really [about] being responsive to change. We’re finding out in the past year that more and more things are not within our control, perhaps at our company, or even by our country.”

Here’s what else CFOs need to know about where the central bank might go in 2026.

Under pressure. In his first term, President Trump frequently attacked the Fed’s decisions, while Powell remained mum. In recent weeks, however, Powell changed his tune, directly addressing a criminal probe into his Congressional testimony about a central bank renovation project. 

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said in a January 11 video message.

More recently, the Supreme Court heard arguments regarding President Trump’s attempted removal of Lisa Cook from the Federal Reserve board, during which justices questioned Trump’s ability to fire Cook for an unproven allegation of mortgage fraud before she took office.

For any decision the Fed makes (and more on what that might be in a minute), the central bank “now has the additional job of having to do it in a way that looks like it’s not bending to pressure,” Tang told CFO Brew. “Let’s say in March or in June, it wants to cut [rates], then it really needs to make very clear we’re cutting because of what we see in the economy, and not because Trump is yelling at us or Trump is suing us.”

Others are more skeptical that politics will majorly impact decisions from the historically independent Fed. “I don’t see really a big possibility for a philosophical shift that would endanger the Fed’s ability to create price stability,” Preston Caldwell, chief US economist with Morningstar investment management, told us.

Cut for time. For all the political intrigue, rate decisions will ultimately be shaped by “the economy’s performance,” Hilsenrath said. The trouble is: That’s not much less chaotic than the political landscape. “There’s a lot of uncertainty about how that plays out,” he added.

Zandi thinks the state of the job market “will be the dominating decider in terms of what the Fed does. That means more rate cuts, probably one quarter-point cut in March. That would be likely, given my outlook for the job market.”

Others, including Tang and Hilsenrath, expect the first cut to come in June. All the while, Tang said, “we are telling clients not to ignore March as a possibility for the next rate cut.”

“The market is saying, ‘All right, let’s pencil in two more rate cuts in the second half of the year,’” Hilsenrath said. “That’s the middle ground, but I think we could tilt toward the hawkish narrative, which is, there’s no room to do anything, and we could tilt toward the dovish narrative that gets rates lower than the market is pricing in.”