Traders Bet on Fed Rate Cuts as Political Pressure Mounts

Market participants are increasingly pricing in Federal Reserve rate cuts for 2025–2026, with SOFR-linked futures showing a widening gap between December 2025 and December 2026 contracts. The spread surged after former President TRUMP criticized Fed Chair Jerome Powell, reflecting expectations that Powell's successor will align with political pressure for lower borrowing costs.

Columbia Threadneedle's Ed Al-Hussainy notes: "Whoever comes in next will have a bias towards lowering rates." This shift comes as traders now anticipate 76 basis points of reductions next year, up sharply from 25 basis points in April.

The Fed faces growing political headwinds, with GOP leaders criticizing Powell's resistance to cuts amid inflationary concerns from proposed tariffs. Some Republicans have also targeted the central bank's expensive headquarters renovation.