U.S. developments regarding monetary policy and Federal Reserve leadership are raising new expectations in the market. The conclusion of the investigation into Jerome Powell is seen as a development that will reduce institutional uncertainty and strengthen expectations for interest rate cuts.
Robert Pirro, the U.S. attorney for the District of Columbia, announced that he is closing an investigation into Federal Reserve Chairman Jerome Powell’s construction spending. Officials said the Fed’s spending will continue to be investigated by the inspector general, but added that the probe could be reopened if deemed necessary.
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On the market side, interest rate expectations have reached alarming levels. There is a 76% chance that the U.S. Federal Reserve will cut interest rates by a total of 25 basis points by the end of the year, according to data from CME’s FedWatch. In a more aggressive scenario, the probability of a 50bp cut is 21.3%, the probability of a 75bp cut is 2.2%, and the probability of a 100bp cut is 0.1%. The probability that the interest rate will remain unchanged is only 0.4%.
However, the investigation’s conclusion is seen as a significant development that could pave the way for former Fed official Kevin Warsh to be confirmed as Fed chairman. Warsh’s odds of being confirmed as Fed chairman rose to 80% by May 15 and 95% by June 30, according to data from prediction platform Polymarket.
*This is not investment advice.
