How Will the Suspension of the Investigation Against Fed Chair Jerome Powell Affect Interest Rate Decisions?

Developments in the US regarding monetary policy and the Federal Reserve’s leadership have triggered new expectations in the markets. The termination of the investigation into Jerome Powell is seen as a development that both reduces institutional uncertainty and strengthens expectations of interest rate cuts.

U.S. Attorney for the District of Columbia, Robert Piro, announced that the investigation into Federal Reserve Chairman Powell’s construction spending would be halted. Officials stated that the Fed’s spending would continue to be reviewed by the agency’s inspector general, but added that the investigation could be reopened if deemed necessary.

On the market side, interest rate expectations have reached remarkable levels. According to CME’s FedWatch data, the probability of the US Federal Reserve making a total of 25 basis point interest rate cuts by the end of the year is calculated at 76%. In more aggressive scenarios, the probability of a 50 basis point cut is 21.3%, a 75 basis point cut is 2.2%, and a 100 basis point cut is 0.1%. The probability of no change in interest rates is only 0.4%.

On the other hand, the conclusion of the investigation is seen as a significant development that paves the way for former Fed official Kevin Warsh’s confirmation as Fed chairman. According to data from the forecasting platform Polymarket, the probability of Warsh being confirmed as Fed Chairman has risen to 80% by May 15th and to 95% by June 30th.

*This is not investment advice.