What Will the Fed Do With Rates Wednesday?

• New Fed Chairman Warsh is expected to announce no change to the Fed fund rate at 14:00 (ET) Wednesday. 

• The Fed fund futures curve shows the market is pricing in a 25-basis point hike at the conclusion of the December 2026 meeting. 

• However, the intrigue will be how long the US president allows this situation to exist, keeping in mind his dictate for lower rates and his stated belief he should have final say on all interest rate decisions. 

Welcome to another Fed Wednesday. With the situation as it is now we can safely say, “It’s Howdy Doody time!” New US Fed Chairman Warsh, aka the president’s personal Howdy Doody puppet, is expected to announce no change to the Fed fund rate at 14:00 (ET), based on the latest look at the Fed fund futures (ZQM26) forward curve. However, given the dictate of lower rates from the puppeteer himself, it’s possible by this time Thursday morning Mr. Warsh could hold the title “former Chairman” after hearing the president’s trademark “You’re fired”.

Let’s take a look at what the Fed fund futures forward curve is telling us about expected changes in mid-June based on the price of futures contracts (1% – Futures Price = Expected Rate). The current range is between 3.5% and 3.75%.

• June: 96.3775 = 3.6225%
• July: 96.365 = 3.635%
• August: 96.35 = 3.65%
• September: 96.32 = 3.68%
• October: 96.285 = 3.715%
• November: 96.255 = 3.745%
• December (ZQZ26): 96.195 = 3.805%
• January 2027: 96.17 = 3.83%
• February: 96.14 = 3.86%
• March: 96.125 = 3.875%
• April: 96.1 = 3.9%
• May: 96.085 = 3.915%

What do all these numbers tell us?

• The June through November futures contracts are all priced within the current range, though the November is getting close to the high side of 3.75%.
• The December issue at a rate of 3.805%, outside the current range, indicates the Fed would hike the rate by 25-basis points at the conclusion of its December meeting (Wednesday, December 9).
• Note this is conveniently after US mid-term elections on Tuesday, November 3. (There is no meeting in November, yellow line on chart.)

What are the three key elements Chairman Warsh will address in his post-announcement press conference today?

• Inflation.
  • The May Consumer Price Index (CPI) and Producer Price Index (PPI) were both higher than expected. This came as a surprise to nobody, with even the US president commenting, “I love the inflation”.
• US labor market
  • The May jobs report showed 172,000 added, well above expectations. Of course this number led to a great deal of debate, and eventually will be revised, as nearly all nonfarm payroll numbers are.
  • Unemployment held steady at 4.3%

What is the bottom line?

• The US president has a standing dictate that US interest rates must come down. Recall from the 2024 election cycle when he said repeatedly he should have final say in all interest rate decisions.
• Heading into the conclusion of his first meeting as Chair, Mr. Warsh is viewed as nothing more than a puppet. If he makes the announcement of unchanged rates, based on the vote of Fed governors, it will be interesting to see how long until Mr. Warsh is replaced. After all, he has one job: Cut rates. Actual monetary policy is irrelevant.

Stay tuned.