On June 18, the interest rate futures market showed that the trading volume betting on the Federal Reserve's future policy path has successively reached historical peaks, with the focus accurately fixed on June 2026-no matter who will succeed Powell in charge of the Federal Reserve, the market will be sure that the dovish turn will come soon.

"Politically dominated monetary policy"

Futures bets have been increasing in markets closely linked to the Guaranteed Overnight Financing Rate (SOFR), which closely tracks the Fed's policy outlook.The bet has gained momentum since Trump said this month that he would appoint a successor "soon."Bloomberg terminal data shows that the implied probability of interest rate cuts at the June 2026 meeting has soared to more than 85%.

Analysts said that the market is pricing "politically led monetary policy" with an intensity unseen since 2008. This expectation completely skips the routine evaluation process of the new chairman's policy philosophy, economic data at that time or inflation trajectory, simplifying the Fed's decisions into mechanical responses after political appointment.

Brookings Institution research shows that if the White House changes, up to four council seats may need to be reappointed in the next two years.The fixed-term design of Federal Reserve Board members (usually as long as 14 years) is designed to insulate themselves from political fluctuations.Even if the chairman changes, continuity within the council still constitutes a strong check and balance.However, current bets that show traders believe these institutional barriers may fail-they are betting that the new chairman can quickly coerce or replace the board-are essentially a bearish option on the resilience of the Fed's institutions.

Will Powell usher in a "hawkish curtain call"?

For tonight's interest rate decision, markets expect the Fed to keep rates stable in June and July, but may convey its intentions this week by revising economic and interest rate forecasts.The federal funds futures market showed that as of Tuesday afternoon local time, traders expected two 25 basis point rate cuts before the end of 2025.

The pattern revealed by DataTrek co-founder Nicholas Coras is being fulfilled: three predecessors Greenspan, Bernanke, and Yellen all bowed in hawkish tones. Powell is moving on this set track, and at the last eight FOMC meetings before the end of his term in May next year, defending the independence of central banks will become his supreme mission.

Powell's curtain call path may coincide with that of his predecessors.

Before Alan Greenspan left office in January 2006, he had pushed the federal funds rate to 4.25%. Faced with the hidden danger of a real estate bubble, he bluntly said that "risk management requires us to be vigilant."Ben Bernanke launched the reduction of bond purchases (Taper) in December 2013, starting the process of normalizing monetary policy under the pressure of violent market fluctuations. When he left office, the size of his balance sheet was fixed at a high of US$4.5 trillion.On the eve of Janet Yellen's handover of the baton in February 2018, in an environment of full employment where the unemployment rate had dropped to 4.1%, she withstood political pressure to complete her last interest rate hike during her term.

The Wall Street Journal once quoted the Federal Reserve's internal memorandum as pointing out that this "hawkish finishing" model stems from a deep understanding of historical lessons-political pandering during the Arthur Burns era in the 1970s directly led to runaway inflation and ultimately caused the Fed's reputation to be shrouded in dust for a decade.

Goldman Sachs 'stress test model shows that if the policy interest rate remains at 5.25%-5.5% until the end of the year, about 23% of U.S. small and medium-sized enterprises will face debt coverage falling below the safety threshold.The more far-reaching impact is the distortion of the term premium. The real yield on 10-year U.S. bonds has been upside down for 16 months. This capital mismatch is inhibiting investment in manufacturing upgrades.