Interest Rates News: First Quarter 2026

The Federal Reserve Open Market Committee (FOMC) eased monetary policy by 0.25% in December 2025, further lowering the Federal Funds Rate to a 3.50% - 3.75% range. The group’s economic projections indicate the inflation rate could drop but remain higher than desired. The unemployment rate will remain flat.

The 10-Year U.S. Treasury yield remains stable within historic ranges. Borrowers should make financing decisions based on current rates.

Source: Bloomberg & Synovus, February 3, 2026

Federal Funds Rate Update

• The FOMC met twice in the fourth quarter. After each meeting, the committee decided to cut rates by 25-bps, which brought the Federal Funds Target Rate (Fed Funds) down to 3.50-3.75%. There is growing disparity among Fed members as Jeffrey Schmid voted to keep rates unchanged while Stephen Miran advocated for a 50-bp cut at the October meeting. As of this writing, several members continue to dissent (the last two were Miran and Waller).
  
  
• At the October meeting, the FOMC stated “job gains have slowed and . . . the unemployment rate edged up but remains low,” as well as “inflation moved up and remains somewhat elevated.”
  
  
• In October, Jerome Powell was hawkish during the press conference following the announcement, emphasizing that inflation continues to rise at a moderate pace and employment remains stable. However, he noted that the absence of recent government data limited the committee’s ability to forecast interest rates, leaving analysts to speculate on the since-completed December cut.
  
  
• Investors received the Summary of Economic Projections from the FOMC in December. The report showed that the median member expects inflation to decrease slightly but remain close to 3.0% while unemployment stays flat at 4.5%.
  
  
• At the January 28, 2026, meeting, the FOMC decided in a 10-2 vote to keep the policy rate unchanged, leaving the effective range between 3.50-3.75%. The next Fed meeting is March 18. As of this writing, the market currently assigns 10% probability that there will be a 25-basis point cut but these expectations can shift significantly if the underlying economy, particularly the labor market, shows strength in the months ahead.
  
  
• Data from Q1 2026 should provide additional clues to the future path and timing of monetary policy adjustments as the FOMC currently finds itself trying to solve the riddle of how to manage slowing job growth and still elevated inflation.

Term Borrowing Rate Update

• The FOMC is responsible for monetary policy and influences short-term interest rates. However, multiple factors that are difficult to predict affect longer-term interest rates such as US Treasury securities and swap rates.
  
  
• To assess the level of term borrowing rates, market participants will consider short-term rate expectations, long-term forecasts for growth and inflation and the fiscal outlook for budget deficits associated with increasing or decreasing Treasury securities supply.
  
  
• Although the Fed cut the effective federal funds rate (EFFR) 50-bps throughout Q4 2025, longer-term borrowing rates increased. The 10-year US Treasury yield nearly reached 4.25%, which equates to 20-bps higher. The Bankrate.com 30-year fixed national average mortgage rate settled around 6.25%.
  
  
• Despite the increase in longer term yields, the 10-year US Treasury stabilized between 4.00%-4.20% throughout the month of December 2025. This range seems stable despite changing economic forecasts, fiscal policies, equity market rallies and corrections, and easing FOMC policy during the period.
  
  
• Borrowers should consider the implications of FOMC’s .50% rate cut in September 2024, as well as the nearly equal 10-year US Treasury yield increase, when making financing decisions. The same US Treasury yield increase occurred in Q4 2025.
  
  
• While past performance doesn’t indicate future results, borrowers shouldn’t assume term rates will be lower in the future. Instead, they should consider taking advantage of known term rates that remain well within historic ranges.

This “Interest Rates News Update” is a quarterly communication. Stay informed. Contact a Synovus Commercial Banker or stop by one of our local branches for more details.

Foster Olson is an Associate of Synovus’ Capital Markets-Derivatives. Olson’s focus is hedging rates.