Fed Rate Cuts & New Chair Buzz: Traders Double Down on 2025–2026 Bets

Markets are pricing in a dovish pivot—and a fresh face at the Fed.

Wall Street's crystal ball says: Lower rates ahead. With whispers of a leadership shakeup, traders are stacking chips on aggressive cuts through 2026. Because nothing says 'soft landing' like betting against the house.

The playbook? Front-run the Fed before the new boss even unpacks their office. Just don't mention that time everyone got burned playing this game in 2023.

Political pressure mounts on the Fed

Powell has taken heat from GOP leaders for resisting cuts amid concerns that the administration’s tariffs could stoke inflation. Some Republicans have also criticized the Fed’s recent, high‑cost renovation of its headquarters.

Asset managers have repositioned portfolios in anticipation of a new Fed Chair, while Wall Street strategists are drafting trade plans for a variety of outcomes, including the remote possibility of Powell stepping down.

So who will replace Powell? Potential Fed Chair picks, Kevin Hassett and Kevin Warsh, have already voiced support for trimming rates. And governors Christopher Waller and Michelle Bowman, both Trump appointees, have hinted they could back a cut as early as the July 29–30 policy meeting.

Traders assign virtually no probability to a MOVE at the upcoming gathering, yet fed‑funds futures imply about a 58% chance of a quarter‑point reduction in September.

Trump may announce chair pick this fall

Trump will also influence the Fed’s voting lineup when Governor Adriana Kugler’s term expires in January. Treasury Secretary Scott Bessent has even proposed naming a new chair pick in October or November, before the vacancy occurs.

The SOFR spread strategy has paid dividends for Jordan Rochester, head of EMEA FICC strategy at Mizuho Bank.

He advised clients to establish the position in early June around 53 basis points, predicting it could expand toward 100 basis points if a dovish Fed Chair takes over.

“Client questions have been less on what we think for U.S. inflation and labor market this week, but more on the various options a new Fed chair could have to please the president,” he said.

Meanwhile, Philip Marey, senior U.S. strategist at Rabobank, updated his outlook on Monday to forecast four rate cuts next year, beginning in September 2025. Previously, he saw only one trimming this year and none afterward.

Comments from Waller and Bowman convinced Marey that a dovish successor could win enough backing among the 12 FOMC voting members to push through reductions.

“I now expect a regime change next year,” Marey said. “The Fed can hold out this year, but once new appointments begin, their resistance is going to crumble.”

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