FOMC preview: What to expect in Powell’s final months
With Chair Powell’s term set to end in May 2026, there are a few different paths he could take
Federal Reserve Chair Jerome H. Powell | Federalreserve/”Chair-Powell-ECC-Hilton-PHX7176″ (CC license)
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US equities and bitcoin were in the red Tuesday afternoon as conflict in the Middle East stretched into a fifth day. Investors are also waiting to hear from the FOMC tomorrow about their interest rate decision and, more importantly, what the committee’s latest Summary of Economic Projections has to say.
Bitcoin had lost 2.7% over the day at 2 p.m. ET, hovering around $104,000. The S&P 500 and Nasdaq Composite opened lower and were trading 0.8% and 0.9% lower, respectively, at that time.
All signs point to the Fed holding interest rates tomorrow. And probably again in July. Should the Israel-Iran conflict lead to sustained higher oil prices, the FOMC’s timeline for cutting rates could be delayed further.
Speaking of that timeline, we’ll know a lot more tomorrow. The updated dot plot will tell us where committee members see rates ending 2025, plus where they think the unemployment rate, GDP and PCE are headed.
In March, most FOMC members reported expecting interest rates to land at 3.75–4% by the end of 2025. With the current rate being 4.25–4.5%, this means committee members expected two 25 basis point cuts (or one 50bps decrease) by December.
We know that the first few post-Liberation Day inflation data points have come in mild, milder than committee members had expected. Even so, should the market’s expectations for inflation increase, the Fed is going to get concerned. When businesses and consumers expect prices to rise, it’s like a self-fulfilling prophecy.
It’s also worth noting that Chair Powell is probably in his final lap as head of the Fed. His term ends on May 23, 2026, and based on Trump’s past comments, we doubt Powell will be renominated.
There are eight (including this week’s) FOMC meetings between now and Powell’s presumed departure.
Secured overnight financing rate futures, which provide an avenue for investors to bet on the future of monetary policy, suggest that markets envision Powell cutting rates before the end of his term. Trading volumes on June 2026 options contracts have increased in recent months, per CME Group data.
Historically, though, outgoing Fed Chairs tended to spend their final year being more hawkish. Janet Yellen raised rates three times in the last 12 months of her term. Alan Greenspan, whose final year as Chair was in 2005, issued four hikes. Of course, these were during times of stable growth and low inflation.
In Powell’s case, the most hawkish move of all would be to raise rates this year. We (and markets) are all but certain that will not happen. What he might do instead, which would still be fairly hawkish, would be to delay rate cuts. “Higher for longer.”
All that said, should you buy options? I’m not in the business of offering investment advice, so I’ll hold my tongue, mostly.
My advice is to wait until Powell’s press conference tomorrow. We’ll have a better idea of what the Fed Chair is thinking then.
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