Wall Street is already trading on the idea that Jay Powell’s days at the Federal Reserve are numbered, and when he’s gone, interest rates are going down hard.
Traders are betting on five quarter-point cuts by the end of next year — not four, like they expected a month ago. This change is happening as Donald Trump, now back in the Oval, keeps trashing Powell for refusing to cut faster.
The Federal Reserve Chair has been labeled “Mr Too Late” by the president, and that pressure has made markets expect a much more dovish replacement.
According to the Financial Times, the expectations of rate cuts are now baked into futures markets, as rate-setters soften their stance on inflation tied to tariffs.
But the political pressure is louder. Trump is making it clear that Powell’s slow pace won’t fly in this administration. On Truth Social, Trump wrote, “I mean [Powell] goes out pretty soon, fortunately, because I think he’s terrible.” He also said he’s narrowed the list of potential replacements to “three or four people.”
Trump vets candidates as markets plan around Powell’s exit
Among the names floated for the top job are Scott Bessent, now Treasury Secretary, and Kevin Warsh, who sat on the Fed board during the 2008 meltdown. Also in the running is Christopher Waller, a current Fed governor who this week said he’d support a rate cut as soon as July. That comment added fuel to the market’s belief that a pivot is already in motion, even before Powell is gone.
Matthew Raskin, who leads US rates research at Deutsche Bank, told clients this week that the real movement in pricing is focused on mid-2025. “The more notable shift over the past month is in cuts priced for the middle of next year, as the market seems to increasingly anticipate ongoing easing once the next Fed chair is in place,” he said.
The White House hasn’t officially picked a successor, but people close to the decision say an announcement isn’t happening yet. Still, markets aren’t waiting. They’re assuming Trump will pick someone ready to fall in line on monetary policy.
Ian Lyngen, head of US rates strategy at BMO Capital Markets, said, “I think that the prevailing market wisdom is that whoever replaces Powell is going to be more dovish.” Ian also pointed out that even if someone like Kevin Warsh has been hawkish in the past, that doesn’t matter now:
“The people who are under consideration are currently auditioning for the job. To look at prior performance and map it to future performance is not right in this instance.”
Fed officials split as yields drop and inflation slows
There’s growing talk about a possible shadow chair, someone who takes on the direction of the Fed unofficially before Powell’s term actually ends. The White House hasn’t denied that possibility, but again, says nothing is imminent.
Meanwhile, the Fed board itself is divided. This week, Michelle Bowman joined Waller in supporting a July cut, citing softer inflation. That’s caused Treasury yields on two- and five-year notes to hit two-month lows. Those yields are extremely sensitive to Fed policy moves, and right now they’re signaling more easing is on the way.
But Powell isn’t folding. Speaking to Congress on Tuesday, he said no cuts will happen until the fall. He’s waiting to see how Trump’s tariffs hit prices in June and July, and wants to be sure inflation stays under control. That cautious stance puts him at odds with Trump and his economic team, who are publicly pushing for faster cuts.
Inflation in May rose to 2.4%, a small jump, but still below what most economists expected. That lower-than-expected figure is what gave Fed doves like Bowman and Waller confidence to speak up this week. But Powell is still holding the line… at least while he still has the job.
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