The CIO’s view
Deborah Cunningham, CFA
What’s your one contrarian view going into 2026?
That the US Federal Reserve (the Fed) will remain independent. The Trump administration’s relentless criticism of Fed Chair Jerome Powell has led many to think the president will erode the long-held insulation the central bank has from politics. Recent actions, such as attempts to fire one governor and the appointment of a White House economist to the board, have intensified that worry in financial markets. We’re also concerned – but believe that, ultimately, the Fed will prevail, especially given this summer’s Supreme Court ruling that it’s a “uniquely structured, quasi-private entity”.
Although the administration will likely nominate more dovish voting members to join the Federal Open Market Committee (FOMC) – these could include regional Fed presidents, the Board of Governors and, of course, Powell’s successor – we expect the debate about the calibre of the candidates to centre on their market knowledge and credentials. The names floated to succeed Powell seem to fit its desire to influence the Fed, but I’m hopeful the Senate confirmation process will focus on their expertise in monetary policy and that this will maintain the integrity of the institution.
Is the era of low interest rates truly over?
The administration’s dovish stance has raised concerns that we might return to the long period of near-zero interest rates. We don’t think this will be the case. We expect short-term interest rates to remain in a range of 3-5% based on the strength of the US economy, which should keep inflation above 2%. This is the Fed’s stance, as its latest Summary of Economic Projections (SEP) forecasts the long run level of the Personal Consumption Expenditures Index to be 2%. In other words, the Fed’s intention, at the moment, is to continue to define price stability at that level. The other clue, of course, is its long-run fed funds projection, which is currently at 3%. Changes in Fed leadership and the composition of the FOMC likely will not lead to rates around zero anytime soon.
While it’s too early to be confident about the Fed’s path of policy in 2026 – witness the wide range in predictions in the September SEP – we anticipate some amount of easing to continue. But we believe money market funds will remain attractive to investors. Most money fund portfolios hold securities of different maturities bought with the higher rates available before a given Fed cut. This in turn typically causes yields of these portfolios to decline slower than those found in the direct market.
Further themes that will matter next year:
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