Looking at What’s Next for the Fed With the Powell Probe Dropped

This is less about the nominee’s policy preferences than about the pricing of Fed reaction-function credibility. If markets conclude that political pressure will lower the expected path of policy rates while the terminal rate stays anchored, the first-order move is a bull steepener: front-end yields fall, long-end yields fall less, and curve-sensitive assets outperform duration-sensitive ones. The more interesting second-order effect is that equity multiple expansion could widen for long-duration growth and small caps even without a change in earnings, while bank net interest margins and cash-heavy balance-sheet names face compression.

The key risk is that the market conflates rhetoric with governance. If investors believe the Fed’s autonomy is intact, the move likely fades within days and the “lower for longer” trade unwinds quickly; if credibility slips, the adjustment happens over months through higher term premium, a weaker dollar, and tighter financial conditions abroad. That would be particularly painful for non-US risk assets and any crowded short-vol positioning, because rate volatility—not the level of rates—tends to reprice fastest when central-bank independence is questioned.

The contrarian take is that this may be more of a volatility event than a directional macro regime shift. The consensus will likely over-focus on the headline dovishness and underweight the possibility that a nominee who is forced to overcompensate on independence may actually reduce the probability of immediate policy easing. In that case, the tradeable edge is not to chase duration blindly, but to own optionality around a larger-than-expected rates dispersion across the curve and asset classes.