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Market Remains Pessimistic about Sharp Rate Cuts Next Year Despite Change in Fed Chair
Summary: Despite speculation that Fed Chair Powell's eight-year term will end next May and he may be replaced by Trump's chief economic advisor Kevin Hassett, market prices indicate traders do not believe a Hassett-led Fed will significantly ease monetary policy as suggested by Trump. In fact, based on pricing in the interest rate futures market, the ...
Despite speculation that Fed Chair Powell's eight-year term will end next May and he may be replaced by Trump's chief economic advisor Kevin Hassett, market prices indicate traders do not believe a Hassett-led Fed will significantly ease monetary policy as suggested by Trump.
In fact, based on pricing in the interest rate futures market, the expected easing by the end of next year is only 75 basis points. This amounts to just three 25 basis point rate cuts - likely two before Powell's departure and one after the new chair takes office in the second half of 2026. This is mainly due to the expected inflation rate hovering around 3% during the Fed chair transition, with the real interest rate potentially close to zero when the new chair takes over - indicating an already very accommodative monetary policy environment.
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