In recent days, major investment banks have revised their interest rate outlooks for 2026, responding to the new year’s first batches of economic indicators, many of which help complete a fragmented picture of the U.S. economy following the federal government shutdown.

As the layoff rate and unemployment rate remained stable in the second half of 2025 amid declining labor supply and tepid job creation, Federal Reserve Chairman Jerome Powell consistently reported that indicators did not suggest accelerating labor market weakness.

That steady, gradual cooling of the labor market has spilled into 2026 at a similar pace, but escalating attacks on the independence of the Federal Reserve threaten to reset hard-earned progress made in taming inflation, economists warn. The U.S. central bank has a dual mandate to maximize employment and maintain stable prices.

Morgan Stanley, Goldman Sachs and Barclays pushed back rate-cut forecasts to mid-2026 after the Labor Department reported modest job gains in December, suggesting that a jobs market that cooled notably last year is in much the same state that it’s been in for months.

Goldman Sachs had forecast a rate-cut pause in January followed by a pair of 0.25% reductions in March and June. Now a rate cut in June is the first rate reduction predicted by Goldman economists for 2026, followed by a second cut in September.

Barclays shifted its rate-cut projections from March and June to June and December, according to reporting by Reuters, while Morgan Stanley, which previously forecast cuts in January and April, now expects reductions in June and September.

Even more notably, J.P. Morgan no longer expects any rate cuts in 2026. Instead, it predicts the Fed’s next monetary adjustment will be a 0.25% rate hike in the third quarter of 2027.

The national unemployment rate fell from 4.6% in November to 4.4% last month, supporting the banks’ determination that easing in the near term is unlikely. So too have the remarks of a slew of Federal Reserve officials who voiced their perspectives on economic and political developments this week.

Fed officials united on central bank independence

Philadelphia Federal Reserve President Anna Paulson doubled down on remarks she made earlier this month about the runway she sees for rate cuts later in 2026, speaking Wednesday at an event hosted by the Chamber of Commerce for Greater Philadelphia.

“I see inflation moderating, the labor market stabilizing and growth coming in around 2% this year,” Bloomberg quoted Paulson as saying. “If all of that happens,” she continued, “then some modest further adjustments to the [federal] funds rate would likely be appropriate later in the year.”

Median projections made by Fed officials in December showed just 25 basis points of easing for 2026, given median projections of the neutral rate around 3.4%. The target range of the fed funds rate is currently 3.5% to 3.75%, after three consecutive rate cuts totaling 0.75% closed out 2025.

Diverging views on the appropriate path of easing mean there are a wide range of perspectives among Fed officials on what that theoretical “neutral” threshold is where monetary policy neither stimulates nor impedes economic output. Those diverging views belie deeper tensions between Fed policymakers and President Donald Trump, who has said he believes the benchmark fed funds rate should be under 2%.

In an interview with NPR on Tuesday, Chicago Fed President Austan Goolsbee defended the central bank’s campaign to return inflation to a stated 2% target, which requires leaving borrowing costs higher for longer. Higher rates have met escalating attempts by Trump to undermine the Fed’s independence.

“We’ve spent the last five years fighting to get the inflation rate down, and that hasn’t been easy, and if you’re attacking the independence of the Fed, that makes that problem worse,” said Goolsbee.

The U.S. Bureau of Labor Statistics reported Tuesday that the annualized pace of consumer price growth came in at 2.7% in December, no better but no worse than November’s 2.7% reading. The personal consumption expenditures index, which is the Fed’s preferred inflation gauge, registered 2.8% in September, but it has not been updated with more recent figures due to the government shutdown.

The Federal Reserve’s protracted campaign against inflation has been a painful process requiring collective sacrifice from consumers and businesses across the economy. Now that sacrifice, and the progress the Fed has made, threatens to unravel given its current collision course with the president’s monetary policy demands.

“Anyplace where you don’t have central bank independence, inflation comes roaring back,” added Goolsbee.

Evidence for rate cuts needs consensus

“I don’t think that a rate hike is anybody’s base case at this point,” Powell said during a December press conference, referring to his colleagues’ forecasts for monetary policy in 2026. But those base cases may now be shifting, not only in response to incoming data but to inflation risks associated with the erosion of neutral monetary policy.

Loyalty to the president’s low-interest-rate agenda is non-negotiable for whoever he nominates to replace Powell when his term as chair expires in May, Trump recently said. Under those circumstances, the likelihood of further meddling in monetary policy by the president is all but certain.

But policy at the Fed is made by consensus. The 12 voting members of the Federal Open Market Committee convene in Washington, D.C., every six weeks or so to raise, lower or leave the fed funds rate unchanged by a show of hands.

Neel Kashkari, president of the Minneapolis Fed, underscored this feature of the U.S. central bank — one of numerous shields deflecting political meddling in monetary policy decisions — at a virtual event with the Wisconsin Bankers Association on Wednesday.

Kashkari said Trump’s nominee to succeed Powell, “whoever he or she is, will have to make their best argument to the rest of the committee on what monetary policy is appropriate to achieve the dual mandate that we are all charged by Congress to try to achieve.”

“That person gets one vote and the best argument wins,” Bloomberg quoted Kashkari as saying. “I feel confident that the committee will continue to make the best decisions we can, based on data and analysis.”

Ultimately, that means even a loyal chair cannot unilaterally cut interest rates, as the Fed is structured now. In a separate interview with The New York Times on Wednesday, Kashkari backed Powell’s allegations that the criminal investigation opened against him and the central bank over cost overruns on an ongoing renovation of the Federal Reserve’s headquarters is a pretext for the Trump administration to gain control of the institution.

“The escalation over the course of the past year is really about monetary policy,” Kashkari told the Times. He said that it was “just way too soon” to cut rates in January, while leaving the door open for cuts later in 2026.

For Trump — who maintains without evidence that the 2020 presidential election he lost was plagued by voting fraud, a conspiracy debunked by state and federal judges who dismissed more than 50 lawsuits presented by the president and his allies arguing otherwise — the votes he’ll need to win rate cuts in 2026 will demand evidence.