The Federal Reserve hits the pause button as Wall Street bets the new chair will resume rate cuts in June.

Wall Street expects the Fed’s rate-cut cycle will be on pause until the term of Chair Jerome Powell ends in May.

At Wednesday’s FOMC meeting local time, the Fed decided to leave interest rates unchanged. Markets broadly expect this pause will last at least until current Chairman Powell steps down, shifting investors’ attention to the choice of the next Chair and the timing of the new round of rate cuts.

Latest interest rate futures pricing shows that markets have postponed expectations for the next rate cut to June this year. At that time, the meeting will be chaired for the first time by the new Fed Chair nominated by Trump. This change means the core logic that had fueled U.S. stocks in recent months — i.e., expectations for ongoing monetary easing — has temporarily failed. The market is entering a “wait and see” phase, with focus turning to evaluations of economic data, inflation trends, and future personnel and policy moves at the Fed.

The current core consensus among investors is that further rate cuts this year remain possible, with debate focused only on timing and magnitude. Some believe weakening economic data could bring easing sooner, while others remain wary of sticky inflation and even fear there might be no rate cuts this year.

“Pause” under Powell’s tenure, market has postponed rate cut expectations to his successor

Tim Holland, Chief Investment Officer at Omaha, Nebraska-based wealth manager Orion, commented:

“We believe the current economic performance is decent, but inflation remains sticky, and it’s correct for the Fed to keep rates unchanged. We would be very surprised if Powell pushes for another rate cut during his term.”

David Seif, Chief Analyst of Developed Market Economics at Nomura Securities, further pointed out:

“The market’s reaction is muted, largely because Powell only has two meetings left to chair. Any forward guidance he tries to give now has a clear ‘expiration date’.”

Previously, signs of a weakening labor market prompted the Fed to begin a rate cut cycle last year. After nine months of observation, it cut rates by 25 basis points at each of the September, October, and December meetings, lowering rates to the current 3.50%-3.75% range.

The core concern in the market now is whether, faced with persistent inflation pressure, the Fed can conditionally restart its rate-cut cycle later this year to continue providing necessary liquidity support for stocks and the overall economy.

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