Jim Reber: Fed Policy Outlook for 2026

It’s spring, and as long-term readers of this column might have noticed, I’m a baseball fan. As the days lengthen, I start thinking about green grass, base running and curveballs. In doing so, I keep finding parallels to our national pastime and community banking. It’s not just that they’re both ingrained in our uniquely American fabric. I’m convinced they are inseparable from our high standard of living. 

I’ve taken notice (at least for 2025–26) that there is a bigger-than-normal turnover in the makeup of the Federal Open Market Committee. The FOMC is the 12-member subset of the full Federal Reserve Board that determines monetary policy at the eight regularly scheduled annual meetings. There have been years in which the FOMC went through its calendar with nary a change to policy, the most visible of which to community banks is the setting of “fed funds,” or the rate that financial institutions charge each other for overnight borrowings.

Federal Reserve and FOMC leadership changes in 2026

Here’s where a comparison to baseball takes root. Before the days of free agency (now more than half a century ago), year-over-year changes to the teams’ makeup were greatly limited. Players could retire, management could “cut” players, they could be demoted to or promoted from minor leagues, or teams could trade players to other teams. Other than that, the 25-man roster was mostly static. One example: the Los Angeles Dodgers had the same four-man infield for more than eight years. Cey, Russell, Lopes and Garvey lined up around the horn pretty much every day from 1973 to 1981. 

The FOMC has, by statute, a rotation of four regional bank presidents each calendar year. What’s different is there was an unscheduled change in the seven-person board of governors last year and a guaranteed change of chairman this year. Add to that the leanings of the four new regional presidents, who at this point have little track record regarding their voting biases, and Fed watchers have commented that this lineup is a bit of a wild card. It’s beginning to look like a reshuffled major league team of the 21st century.

2025 FOMC policy decisions and rate cut signals

It’s no secret that Fed chairman Jay Powell has been, let’s say, scrutinized by the current administration. There’s no real evidence that pressure has changed any opinions of those that were on the FOMC for the entirety of last year. However, the unforecasted roster change was Fed governor Adriana Kugler’s resignation in August. That precipitated the installation of Stephen Miran as her successor. 

Miran has been the most doveish FOMC member. He dissented from the motions made at the September, October and December 2025 meetings, as well as in January. At each, he argued for larger rate cuts. It’s also accepted as fact that the “dot plot’s” lowest individual projections throughout the time frames displayed, which now extend beyond 2028, belong to Miran.

2026 FOMC voting members and policy outlook

Up to bat on the committee are:

• Beth Hammack, Cleveland
• Neel Kashkari, Minneapolis
• Lorie Logan, Dallas
• Anna Paulson, Philadelphia

This is Paulson’s first time to be a voter, as she took office last July. Collectively, these voters are considered hawkish and perhaps less inclined to cut rates than the rest of the committee. However, they replaced a group that had nearly the identical preference for moving slower rather than faster, so perhaps the 12-person team has a similar bias as last year.

Of course, the big change will occur in May, when Kevin Warsh takes over as the new chair. He will likely replace Miran, whose own term expired on January 31 and has been serving on an interim basis since. It remains to be seen if Powell continues as a governor (his term ends in 2028) or retires concurrently with Warsh’s installation. If so, that adds to the churn in the makeup of the Federal Reserve board.

2026 interest rate forecast and yield curve outlook

As of this writing, there is mostly consensus about the path of interest rates in 2026. The latest guidance from the Fed and “market-based indicators” (the futures markets) both are projecting two rate cuts, which would leave overnight rates around 3.25% by December. 

Just as importantly for community banks is what intermediate- and long-term rates will do this year. Remember that a positively sloped yield curve predicts higher rates in the future; the steepening in the second half of 2025 was attributed to institutional buyers’ growing unease with the twin threats of inflation and debt supply. It’s within reason that the current 70-basis point (0.70%) slope gets to 100 basis points if two rate cuts are engineered while core inflation and deficit spending proceed at their current levels.  

While I’ve made much of the changing makeup of the 2026 FOMC, it’s worth noting that the 2025 World Series champions, which were again the Dodgers, had only three everyday starters in the same positions from their 2023 edition. Which is to say that although the names and jersey numbers may rotate, organizations can continue apace with a different group of capable contributors. Such are the expectations of the financial markets, which are forecasting the same modestly lower year-end rates that the Fed itself is projecting. So, here’s to the rites of spring and to credibility in our monetary policy-setting team.

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