Trump's Rejection of Hassett Leads to Significant "Shrinkage" in Fed Rate Cut Expectations

Odaily News: Due to Trump hinting that he would nominate someone other than National Economic Council Director Hassett to succeed Powell, U.S. Treasury bond prices fell, and traders scaled back expectations for two U.S. rate cuts in 2026. The decline in U.S. Treasuries pushed the two-year yield up by 5 basis points at one point to 3.61%, reaching its highest level since the Fed's most recent rate cut in December. Following Trump's comments on Hassett, short-term interest rate contracts reflected a decreased probability of the Fed implementing two 25-basis-point rate cuts this year. Meanwhile, the Treasury market continues to be troubled by the December employment data released a week ago, which prompted Wall Street banks that had previously predicted a Fed rate cut at its next meeting on January 28th to abandon that view. Morgan inflation economists predict that the Fed will not cut rates further, despite the ongoing leadership transition. John Fath, Managing Partner of BTG Pactual Asset Management US, said: "The previous trade was betting that whoever becomes the next Fed chair would be dovish. That dynamic has reversed over the past few days." (Jin10)