The Final Chapter of the Powell Era

Federal Reserve Chairman Jerome Powell has guided America through a global pandemic, the worst inflation in 40 years, and one of the most aggressive rate-hiking cycles in history. Now, with just four months remaining in his term, Powell faces perhaps his most delicate balancing act yet.

The question gripping Wall Street and Main Street alike: How many times will the Fed cut interest rates before Powell hands over the keys? The answer could determine whether 2026 brings relief for borrowers, continued gains for investors, or an unexpected economic downturn.

Mark Zandi, chief economist at Moody's Analytics, believes the Fed will surprise markets with three quarter-point rate cuts before midyear. His reasoning: a softening labor market, moderating inflation, and the reality that the Fed's current 4.25%-4.50% target range remains restrictive.

"The labor market is losing momentum. Inflation is coming back to target. The Fed has room to cut, and they should use it before it's too late."

— Mark Zandi, Chief Economist, Moody's Analytics

But not everyone shares Zandi's optimism. At the Fed's December meeting, three FOMC members dissented on the decision to cut rates by 25 basis points, arguing the Fed should hold steady. This internal division suggests rate cuts are far from guaranteed.

The Case for Rate Cuts

Proponents of additional rate cuts point to several economic indicators suggesting the Fed has room to ease:

Cooling inflation: After peaking at 9.1% in mid-2022, inflation has steadily declined toward the Fed's 2% target. Forecasts suggest inflation will moderate to approximately 2.4% in 2026—still above target, but moving in the right direction.

Softening labor market: While unemployment remains historically low, job openings have declined, wage growth is decelerating, and hiring has slowed across multiple sectors. These trends suggest the labor market is rebalancing without widespread distress.

Restrictive policy stance: Even after recent cuts, the Fed's policy rate remains well above neutral. Additional cuts would simply move policy from "very restrictive" to "somewhat restrictive," not into stimulative territory.

Financial conditions: Tight monetary policy is beginning to stress certain sectors of the economy, particularly commercial real estate, small business lending, and consumer credit. Modest rate cuts could prevent unnecessary damage.

The Case for Holding Steady

The Fed doves aren't alone in the debate. Hawks argue that cutting rates too quickly could reignite inflation or create financial instability:

Sticky inflation: Core services inflation remains elevated, and there's little evidence it will decline to 2% without additional pressure from monetary policy.

Strong economy: GDP growth remains robust, consumer spending continues, and the stock market is near record highs. In this environment, rate cuts might be premature.

Political considerations: With Powell's term ending and a new administration in the White House, some Fed officials may prefer to maintain current policy rather than risk appearing politically motivated.

Asset bubbles: Lower rates could inflate already-expensive stock valuations and reignite speculation in cryptocurrencies and other risk assets.

The Succession Question

Adding complexity to the rate debate is the looming question of who will succeed Powell when his chairmanship expires in May 2026. The leading candidates reportedly include Kevin Hassett, who served as chair of the Council of Economic Advisers, and Kevin Warsh, a former Fed governor.

The choice matters enormously. A hawkish successor might reverse any rate cuts Powell implements, creating whiplash for markets and the economy. A dovish chair could accelerate cuts, potentially risking inflation's return. And the uncertainty itself creates volatility.

History shows that Fed leadership transitions often coincide with market turbulence. When Alan Greenspan retired in 2006, the transition to Ben Bernanke preceded the financial crisis. When Bernanke left in 2014, markets experienced the "taper tantrum." Powell's own appointment in 2018 was followed by a sharp fourth-quarter selloff.

What This Means for Your Money

The Fed's rate decisions over the next four months will ripple through every corner of your financial life:

Mortgage rates: If the Fed cuts rates three times, mortgage rates could decline modestly, though experts caution they're unlikely to fall below 6% in 2026. Homebuyers should focus on finding the right property rather than timing rate movements.

Savings accounts: High-yield savings accounts and money market funds, which currently pay around 5%, will see yields decline with each rate cut. Savers should lock in attractive CD rates while they're available.

Credit cards: Credit card APRs, which currently exceed 21%, should decline slightly with rate cuts, but they'll remain elevated. Paying down high-interest debt should be a priority regardless of Fed policy.

Stock market: Rate cuts typically boost stock prices, but the market has already priced in substantial easing. The real impact will depend on whether cuts are seen as supporting growth or responding to economic weakness.

Bonds: Fixed-income investors may finally see improved returns in 2026. If rates decline as expected, bond prices will rise, delivering both income and capital appreciation.

The Bottom Line

Jerome Powell's final months as Fed chairman will be scrutinized like few other periods in central banking history. Whether he delivers three rate cuts, one cut, or none at all will depend on evolving economic data and the Fed's assessment of inflation risks versus growth concerns.

For investors and consumers, the key is to plan for multiple scenarios rather than betting on a single outcome. Build a diversified portfolio, maintain an emergency fund, focus on paying down high-interest debt, and make financial decisions based on your personal circumstances—not Fed predictions.

The Powell era is ending, but the impact of his final decisions will be felt long after a new chairman takes the helm in May.