Why 2026 Could Bring Four Interest Rate Cuts From the Fed, And What to Do About the Fed Being Offsides

• Unemployment rose from 4% in January 2025 to 4.6% by year end, triggering the Sahm rule multiple times and signaling potential recessionary pressures
• Jerome Powell is expected to step down in May 2026, with Kevin Hassett potentially becoming the new Fed chair under Trump's selection
• Questions about Fed independence are likely to emerge as Trump has clearly signaled his desire for lower interest rates and will hand-pick a compliant Fed chair

Market Summary: Fed Rate Cut Outlook for 2026

The article argues that the Federal Reserve may implement four interest rate cuts in 2026, contrary to market expectations of only two cuts. Key unemployment data shows a rise from 4% in January 2025 to 4.6% by year-end, triggering the Sahm Rule multiple times and signaling potential recessionary pressures.

Key Data Points:

• Unemployment: 4% (Jan 2025) → 4.6% (Dec 2025)
• Current Fed Chair Jerome Powell expected to step down in May 2026
• Market indices as of January 2, 2026: S&P 500 at 6,874.40 (+0.24%), Dow Jones at 48,063.60 (-0.17%), Nasdaq 100 at 25,431.20 (+0.64%)

Critical Factors:

The deteriorating job market represents the primary catalyst for potential rate cuts. Despite unemployment remaining historically low, the sharp upward trajectory combined with pessimistic University of Michigan consumer sentiment data could prompt more aggressive Fed action.

Fed Leadership Transition:

President Trump's influence on selecting the new Fed Chair raises questions about central bank independence. Kevin Hassett is mentioned as a potential candidate, with Trump publicly favoring lower interest rates. This political dynamic could accelerate the pace of rate cuts beyond current market expectations.

Market Implications:

Investors should prepare for potential volatility in long-term interest rates as Fed independence concerns mount. The transition period around May 2026 could create uncertainty in bond markets. The author suggests positioning for more rate cuts than currently priced in, viewing this as a tradeable opportunity over the coming months.