Trump Pressures Fed for Immediate Rate Cuts as 2025 Election Looms and Eyes Powell Replacement

Key Points

• Research suggests the market is betting on a more dovish Federal Reserve as Donald Trump considers replacing Jerome Powell, expecting lower interest rates.

• It seems likely that Trump's preference for rate cuts and potential appointees' views are driving this expectation.

• The evidence leans toward market pricing in more aggressive rate cuts than the Fed's projections, influenced by Trump's criticism of current policy.

Background

The Federal Reserve (Fed) sets interest rates to manage economic growth and inflation. A dovish Fed is seen as favoring lower rates to boost the economy, while a hawkish stance might prioritize controlling inflation with higher rates.

Market Expectations

Investors are betting on the next Fed chair, potentially appointed by Trump, to cut rates faster than current projections. This is based on market data showing expectations for around 125 basis points of easing by December 2026, compared to the Fed's projected 75 basis points.

Trump's Influence

Trump has publicly called for significant rate cuts, criticizing Jerome Powell and the Fed for not lowering rates. His statements, such as demanding rates drop immediately, suggest he favors a more dovish approach, influencing market sentiment.

Potential Candidates

Candidates like Christopher Waller have indicated openness to rate cuts, aligning with a dovish stance, while others like Kevin Warsh have mixed views but might support lower rates under certain conditions.

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Comprehensive Market Analysis: Market Bets on a More Dovish Fed as Trump Eyes Powell's Replacement

This section provides a detailed examination of why the market is betting on a more dovish Federal Reserve as Donald Trump considers replacing Jerome Powell, announced on various platforms as of June 26, 2025. The analysis is grounded in recent market data, news reports, and Trump's statements, aiming to offer a thorough understanding for readers interested in monetary policy and market dynamics.

Market Expectations and Rate Cut Projections

The market's bet on a more dovish Fed is primarily driven by the expectation that Trump's replacement for Jerome Powell will adopt a more accommodative monetary policy, favoring lower interest rates to stimulate economic growth. Recent reports, such as Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement, indicate that investors are pricing in more rate cuts than the Fed's own projections. Specifically, the Fed policymakers projected three quarter-percentage-point cuts by December 2026, totaling 75 basis points (two in 2025 and one in 2026), as noted in the analysis. However, fed funds futures suggest approximately 125 basis points of easing by the same period, a difference of 50 basis points, reflecting a market expectation of a deeper economic slowdown.

This discrepancy is further evidenced by traders pushing the implied yield of Secured Overnight Financing Rate (SOFR) futures contracts maturing in December 2026 to 65 basis points below those expiring in December 2025, the most negative spread ever recorded, as per Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement. This pricing indicates a strong market belief in a more dovish Fed under new leadership, potentially appointed by Trump.

Trump's Influence and Public Statements

Donald Trump's public advocacy for lower interest rates is a significant driver behind the market's expectations. Recent statements from Trump, as reported in various news outlets, highlight his frustration with the Fed's current stance and his desire for immediate rate cuts. For instance, ABC News: Trump criticizes Federal Reserve, calls for lower interest rates notes that on March 20, 2025, Trump criticized the Fed hours after it opted to hold rates steady, urging them to cut rates to prepare for escalating tariffs. He stated, “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy,” emphasizing his preference for a dovish policy.

Further, Reuters: Trump says he will demand lower interest rates reports that on January 23, 2025, Trump told the World Economic Forum in Davos, “With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world.” This rhetoric, coupled with his criticism of Powell as “terrible” and calls for rate cuts of 2-3 percentage points, as mentioned in Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement, reinforces the market's bet on a dovish Fed.

Trump's intention to potentially announce a replacement by September or October, as noted in the same Reuters article, adds to the market's anticipation, with reports suggesting he has three or four candidates in mind, further fueling speculation.

Potential Candidates and Their Monetary Policy Views

The market's expectations are also influenced by the potential candidates Trump might appoint, each with varying views on monetary policy. According to Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement, the top candidates include Fed Governor Christopher Waller, former Fed Governor Kevin Warsh, White House economic adviser Kevin Hassett, Treasury Secretary Scott Bessent, and Judy Shelton, with prediction markets like Polymarket and Kalshi listing Waller and Warsh as having the best odds.

• Christopher Waller: Waller has recently stated that he feels the inflation risk from tariffs is small and supports rate cuts by July, as noted in Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement. This dovish stance aligns with market expectations, suggesting he might favor lower rates to stimulate growth.

• Kevin Warsh: Warsh has criticized the Fed's conduct of monetary policy, particularly its reliance on low interest rates and asset purchases, as mentioned in The Washington Post: Meet Kevin Warsh, Trump’s preferred pick for Fed chair instead of Powell. However, he has also suggested a possible pathway to lower policy rates, indicating potential openness to dovish policies under certain conditions.

• Kevin Hassett and Scott Bessent: Specific views on monetary policy for Hassett and Bessent are less detailed in the results, but their alignment with Trump's administration suggests they might favor policies supporting lower rates, given Trump's rhetoric.

• Judy Shelton: Shelton has been critical of the Fed's independence and past monetary policies, particularly quantitative easing, as noted in The Washington Post: Meet Kevin Warsh, Trump’s preferred pick for Fed chair instead of Powell. Her views might align with Trump's desire for a more controlled Fed, potentially leading to dovish policies if appointed.

The diversity in candidates' views adds complexity, but the market seems to focus on those like Waller, who have explicitly supported rate cuts, reinforcing the dovish bet.

Economic Context and Tariff Impacts

The market's expectations are also shaped by the economic context, particularly the impact of Trump's tariff policies. Reuters: Fed in no rush to cut rates; Trump disagrees notes that Powell has acknowledged higher tariffs could boost inflation, but he has indicated no rush to cut rates, contrasting with Trump's calls. This tension between the Fed's cautious approach and Trump's demands for rate cuts contributes to the market's anticipation of a dovish shift under new leadership.

Risks and Caveats

Despite the market's bet, there are concerns about the Fed's independence and the ability of the next chair to deliver on dovish policies. Reuters: Market bets on a more dovish Fed as Trump eyes Powell's replacement warns that the Fed chair must build consensus with 12 voting members, limiting unilateral action. Analysts like Brian Jacobsen from Annex Wealth Management express concerns about perceived Trump influence, potentially undermining the Fed's neutrality, as noted in the article.

Summary Table of Key Metrics and Influences

To organize the information, the following table summarizes key market metrics and influencing factors:

Metric/Influence	Details
Fed Projected Rate Cuts	Three quarter-percentage-point cuts by Dec 2026, totaling 75 basis points.
Market Expected Rate Cuts	Fed funds futures suggest ~125 basis points of easing by Dec 2026.
Trump's Statements	Called for 2-3 percentage points rate cuts, criticized Powell as "terrible."
Potential Candidates	Waller supports July cuts, Warsh suggests pathway to lower rates.
Economic Context	Tariffs could boost inflation, influencing market expectations.
Risks	Concerns about Fed independence, need for consensus among voting members.

This table encapsulates the current market conditions and the range of factors influencing the bet on a dovish Fed.

Conclusion

The evidence leans toward the market betting on a more dovish Federal Reserve as Donald Trump considers replacing Jerome Powell, driven by Trump's public calls for lower interest rates, market pricing in more aggressive rate cuts, and the potential for a dovish appointee like Christopher Waller. Trump's statements, such as demanding immediate rate cuts to counteract tariff impacts, reinforce this expectation, though concerns about Fed independence and consensus-building add complexity. As of June 27, 2025, this dynamic underscores the interplay between political influence and monetary policy, with markets anticipating a shift towards looser policy under new leadership.

Key Citations

• Market bets on a more dovish Fed as Trump eyes Powell's replacement

• Trump criticizes Federal Reserve, calls for lower interest rates

• Trump says he will demand lower interest rates

• Donald Trump Gets Good News From Federal Reserve

• Donald Trump attacks Fed after no change in interest rates

• Trump says he'll 'demand that interest rates drop immediately'

• Fed in no rush to cut rates; Trump disagrees

• Trump Wants the Fed to Cut Interest Rates by a Full Point

• Fed holds interest rates steady, defying Trump

• Fed leaves rates unchanged, warns of growing 'uncertainty' as more Trump tariffs loom

• Meet Kevin Warsh, Trump’s preferred pick for Fed chair instead of Powell

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