This month’s chart highlights the market’s expectations for US monetary policy as the Federal Reserve (the Fed) approaches a leadership transition. With President Trump set to appoint the next Fed Chair, speculation has grown around the potential for a more dovish policy stance as Trump pushes for lower rates. Two of the frontrunners, Kevin Hassett and Kevin Warsh, have been clear that they would advocate for lower interest rates than what is currently being priced by markets. 

However, despite the likelihood that the next Fed chair will be more amenable to Trump, the market is not currently pricing in meaningful easing. While the narrative around a dovish Trump appointee has gained traction, the market consensus remains for just two 25 basis point rate cuts next year—a stance that reflects the current economic backdrop of steady growth and a gradually softening labour market.

A key factor underpinning market pricing is how the members of the Federal Open Market Committee (FOMC) voted last year. Notably, when Trump-nominated policymaker Stephen Miran called for 50 basis points of cuts in 2025, fellow policymakers did not dissent, suggesting a degree of alignment on a gradual approach to easing. At the same time, Trump has so far been unable to remove Lisa Cook from the FOMC, which limits the scope for more aggressive rate cuts.

As a result, US Treasuries are likely to continue trading within a range, with our forecast for the 10-year yield at 3.75%–4.25% over the coming months. Our current view is that the direction of travel for US interest rates will be determined predominantly by key economic data, particularly labour market indicators, rather than political developments alone.

The principal risk to this outlook is a ruling in favour of the Lisa Cook firing. If Cook is removed, Trump may have the opportunity to nominate additional dovish appointees, which could lead to lower rates even if growth remains above trend. Such a scenario would likely increase volatility in bond markets, as investors recalibrate expectations for the path of monetary policy. But for now, with the market pricing in a measured pace of easing, we expect US Treasuries to remain anchored by economic fundamentals.