‘Powell cuts interest rates to satisfy ‘doves’ at Fed’
The Federal Reserve hasn’t been this divided in five years, with two camps almost evenly divided, concludes Kevin Thozet, member of the investment committee at Carmignac. “Six members are leaning toward easing, and six members are leaning toward leaving interest rates unchanged.”
Thozet expects that Fed Chairman Powell will still implement a cut of 25 basis points to satisfy the ‘pigeons’. “He will likely combine that with a restrictive message to reassure hawks within the Fed. By cutting while emphasizing tighter policy, Powell reduces the chance of additional cuts before the end of his term in May 2026.”
Looking ahead, Thozet said the rotation of regional Fed presidents and Scott Bessent’s willingness to change candidate selection rules will put additional pressure on the Fed. “The expected appointment of a new chairman who is in line with Trump also shows the increasing pressure to lower interest rates, regardless of inflation.”
It is doubtful whether Kevin Hassett, the possible new chairman, can build bridges between both camps, Thozet emphasizes. “If Powell has difficulty reaching a consensus, Hassett, with his outspoken partisan profile, seems even more difficult.”