The market is discussing the impact of Trump’s forthcoming nomination for the new Fed Chair. Expectations lean towards a more dovish Fed, which could result in a weaker US dollar, higher Treasury yields, and increased stock prices.

Decisions on monetary policy, however, are made by 12 voting members, not just the Fed Chair. While the Chair is influential, they do not have sole control. The Fed operates independently to avoid political pressure, and policy changes are not guaranteed with a new chair.

Policy Dynamics And The Fed

Trump’s nomination might not lead to automatic rate cuts, as past appointments have shown independence in decision-making. Powell, nominated by Trump, acted based on his assessment of economic needs, rather than presidential preference.

In the worst-case scenario, policy uncertainty could arise from disagreements within the FOMC. Currently, dovish members are outnumbered by those who are neutral or hawkish. Observers should focus on economic indicators, particularly how inflation trends influence interest rate expectations and future Fed policies.

What’s been laid out so far paints a clear picture: there’s chatter about Trump’s likely pick for Fed Chair, and many are latching onto the idea that a more dovish figure would inevitably push policy in a looser direction. That would, in theory, translate into a weaker greenback, yields climbing on the long end, and perhaps a lift for equities. But here’s the thing — while the Chair sets the tone, the actual policy decisions rest on a broader group with 12 votes at the FOMC table. It’s not a monarchy, and personalities alone don’t swing decisions unless economic data line up.

Powell’s own track record reminds us: even someone handpicked for perceived policy reasons may not act in line with political expectation. He raised rates several times, despite the White House’s disapproval in 2018 and 2019. The institution thrives on its credibility, something built on responding to economic signals—not applause lines.

Trading Desk Insights

Now, for those watching from a trading desk or dealing room, what matters isn’t just who sits in the Chair, but what the group signals after each meeting. Dovish leanings only matter when they’re paired with supporting data, like inflation undershooting forecasts or job growth cooling. As it stands, with the majority leaning neutral-to-firm on rates, even a softer voice at the top won’t tilt the mood much on its own.

The market’s pricing is built on expectations, but when expectations are fragile — say, built more on assumptions than economic markers — you get more room for volatility. The bigger swings often come not when policy is made, but when beliefs about future moves get shaken. Unless inflation drops more decisively and wage trends soften further, the committee remains unlikely to shift in favour of cuts faster than they’ve already outlined.

It makes sense, then, to watch core inflation, particularly services, since goods are already cooling. We are also watching what the forward swaps and futures curves are doing — not what they imply, but whether they’ve overreacted. Rate volatility, especially on the front end, doesn’t settle until policy direction firms up off actual data.

Harker and Waller’s recent remarks show the committee isn’t in a hurry. Upcoming CPI prints will carry weight, and PCE even more so. Movements in the breakeven inflation market will hint at how long-term expectations could anchor the Fed’s hand. A Chair nominee won’t override that — the data carries heavier weight than any individual’s stance.

Traders do well to gauge pricing reactions rather than assume policy direction. Positions should reflect probabilities, not headlines. Even if sentiment points one way — say, favouring cuts — the instruments we watch, like FRA-OIS spreads, should confirm that bias before acting.

Keeping duration exposure nimble, reassessing carry trades with currency overlays, and watching the next Summary of Economic Projections closely could all prove more fruitful than guessing appointment outcomes. It’s the dots, not the face, that end up moving implieds.

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