Divisions at the Fed that defined 2025 are expected to carry into 2026

The past year at the Federal Reserve saw the two sides of its congressionally mandated goals for maximum employment and stable prices in conflict — a situation not seen since the 1970s with stagflation. That dynamic caused divisions within the Fed also not seen in years, evidenced by dissents from opposing directions about interest rate policy.

That's all expected to persist into 2026.

Fed Chair Jerome Powell was able to forge consensus across a divided central bank to cut interest rates three times this year, noted Matthew Luzzetti, chief US economist for Deutsche Bank.

But a new Fed chair might find it more difficult to gain consensus if inflation remains elevated while the job market remains soft.

"While the most likely path remains for further rate cuts ahead, we also see a risk scenario where the next chair eventually faces a committee that could look to raise rates," said Luzzetti.