If 2025 was the year of tariffs, 2026 may turn into the year of interest rates. (1)
There’s a lot of conversation right now about Federal Reserve policy and how much influence politics should have over interest rates and that kind of uncertainty can make markets choppy. While no one can be certain where markets will end up, it does suggest we should be prepared for some ups and downs along the way.
Last month, President Trump directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities. By itself, that move isn’t dramatic. But what it might signal about future policy direction is worth paying attention to.
To make sense of this, it helps to remember that not all interest rates are created equal. Short-term rates are set by the Federal Reserve. Long-term rates, however, are typically determined by investors buying and selling bonds. That balance does occasionally shift during times of crisis, and the government will step in to push rates lower — something we saw during the financial crisis in 2008 and again in 2020. That approach is often referred to as Quantitative Easing.
Think of Quantitative Easing like a sugar rush for the economy. It can provide a burst of energy in the short run. But historically, keeping rates unusually low for extended periods has also coincided with rising inflation pressures later down the line.
President Trump has been clear in recent interviews that he prefers lower interest rates and has criticized the Fed for not moving more quickly. (1(a)) If policy efforts extend beyond recent actions and aim to meaningfully influence long-term rates, there are a couple of things which will warrant close attention.
First, the U.S. dollar. Over the past year, it has weakened against several major currencies. A weaker dollar can make U.S. exports more competitive globally, but it can also make imported goods more expensive here at home. How that balance affects consumers — and consumer sentiment — will be an important story to follow.
Second, inflation expectations and bond market behavior. If investors are comfortable with policy direction, markets may absorb it smoothly. If not, we could see adjustments in long-term rates as bondholders respond. Large global investors, including foreign institutions, regularly evaluate their exposure to U.S. debt. Shifts in that demand can influence borrowing costs and overall market stability. We’ve seen in past global debt episodes how confidence can play a powerful role.
The final variable is leadership at the Federal Reserve. The upcoming transition from Jerome Powell to Kevin Warsh, along with pending legal considerations involving Fed Governor Lisa Cook, adds another layer of uncertainty. The Fed’s independence has long been viewed as a stabilizing force in financial markets. How investors interpret changes at the top may matter as much as the policy decisions themselves.
This isn’t about predicting what markets will do next. It’s about recognizing that interest rate policy may become a central theme this year, as well as closely monitoring how markets respond as events unfold. At VWA, we are continually evaluating economic data, Federal Reserve developments, and bond market behavior so we can assess potential risks and adjust thoughtfully when needed. When rates are in focus, volatility often follows — and that’s when discipline, diversification, and a steady plan matter most.
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(1(a)) Statements made by President Trump
Wall Street Journal Interview, December 2025, Fox Business Interview, February 2026. Additionally reported on ABC News, Axios, Reuters, among many other news sources.
