Traders are now betting on more interest rate cuts as Jerome Powell prepares to leave the Federal Reserve System. A FT report from June 28 highlighted how Powell’s expected exit and criticism from Donald Trump are influencing market forecasts. Traders now expect five quarter-point cuts by the end of 2026, compared to just four projected last month. Trump’s repeated complaints about Powell’s slow actions on have fueled the assumption that the next Fed chair will reduce rates.
Easing Inflation Concerns and Political Pressure Shift Outlook
Recent changes in the policy tone have also influenced these projections. Officials have eased their warnings about inflationary impacts from tariffs, which previously limited the case for cutting rates. At the same time, Trump has repeatedly called Powell “Mr Too Late,” encouraging the view of his eventual replacement. This change in leadership expectations has prompted traders to prepare for a faster pace of monetary easing starting next year.
Matthew Raskin from Deutsche Bank noted that futures markets show the sharpest changes around mid-2026. This trend suggests investors expect steady interest rate cuts once a new Federal Reserve chair begins. Trump said this week that he has narrowed down potential replacements to “three or four people.” In a Truth Social post, he described Powell’s leadership as “terrible” and stressed his desire to appoint someone else quickly. The market is watching closely as the names on that shortlist gain attention.
Political Influence Could Shape Fed Successor’s Stance
Some of the people reportedly under consideration include Treasury Secretary Scott Bessent. He is the former Fed governor Kevin Warsh, and current Fed governor Christopher Waller. Waller has stated that he supports interest rate cuts as early as July. Michelle Bowman, another current Fed governor, has also said that falling inflation supports earlier action. These statements have added to speculation that a shift in the Fed’s leadership and direction may happen sooner.
Analysts have started to examine how political pressure could influence these candidates. Ian Lyngen of BMO Capital Markets mentioned that candidates like Warsh were previously more hawkish. He said that prior views might not be a reliable guide in this case. Trump’s public criticism has placed more attention on the selection process. This makes it likely that some contenders will modify their policy positions to appear more favorable.
Powell Holds Firm as Talk of a “Shadow Chair” Adds to Uncertainty
There are also whispers of a would-be “shadow chair”. Someone who would start to provide signals for the direction of the Fed in advance of Powell’s real departure. While no decision is close at hand, according to the White House, markets already appear to be preparing for change. Leadership change might mean a faster policy overhaul than initially expected. This adds yet another level of uncertainty for investors tracking Fed moves.
Despite all this speculating, Jerome Powell stood firm. During recent testimony to Congress. He indicated current conditions are not ripe for a rate cut in July. He said the Fed should be more sensitive to the impact of tariffs before taking action. May inflation ticked up to 2.4%, a bit higher than April but below what economists had projected. These figures make it harder to predict when rate cuts will actually begin, even as markets price them in increasingly.
Bond Market Responds to Shifting Expectations
Treasury yields have reacted to the shifting outlook. Both two- and five-year note yields have dropped to their lowest levels in two months. These movements reflect expectations of rate reductions once a new chair takes over the Federal Reserve System. Powell has not changed his stance under political criticism, but markets are positioning themselves for a different policy in 2026. With leadership changes ahead, investors continue to monitor each development closely.
The post Traders Brace For Rate Cuts After Powell Departs Next Year appeared first on Coinfomania.