FOMC Preview: Powell Holds the Line, Trump Sets the Future
The January FOMC conference is due to be held on the Wednesday, 28th of January 2:30pm Eastern Time, but the "no cut" decision is already priced in. While $S&P 500(.SPX)$
The real story is President Trump's Davos hint of an imminent, "very impressive" Fed Chair nominee. This has hijacked the narrative, shifting focus from Powell to the looming regime change: Rieder vs. Warsh. The trade isn't the meeting—it's the succession.
The January Decision: "Well Positioned for Nothing"
As we move into January 2026, the Fed's policy stance remains clear: no rate cuts are expected until at least H2 2026. This is reflected in market pricing, with futures and OIS curves implying a patient Fed, likely to hold rates steady through the first half of the year.
Morgan Stanley explicitly expects the Fed to remain on hold, reflecting confidence that current policy settings are sufficiently restrictive for now. Bank of America reinforces this stance, noting that while PCE inflation has cooled, it remains well above the Fed’s target and is expected to stay there through 2027. Together, these views support the idea that the bar for near-term easing remains high.
As a result, January is unlikely to be about immediate policy action. Instead, it serves as a checkpoint where the Fed preserves optionality while awaiting clearer confirmation that inflation is on a durable path back to target.
Powell"s Tone Takes Center Stage
With policy rates expected to remain unchanged, the more consequential signal from the January meeting is Chair Powell's tone.
Deutsche Bank expects Powell to describe policy as “well positioned,” reinforcing the message that the Fed does not feel pressure to act quickly in either direction. This framing suggests comfort with current settings rather than a desire to accelerate easing.
Taken together, institutional views point to continuity rather than a pivot. The January FOMC is therefore less about preparing markets for imminent cuts and more about reinforcing that the Fed believes policy is appropriately calibrated given lingering inflation risks.
If January isn't about cuts or Powell, it's about who comes next.
The Fed Chair Race: Competing Playbooks for the Economy
With no rate cut expected in January and Powell likely to repeat that policy is “well positioned,” market attention is increasingly shifting from when cuts begin to who sets the next policy regime. President Trump has signaled a Fed Chair announcement could come at any time, recently calling one candidate “very impressive,” while Kevin Hassett has publicly praised Rick Rieder. Prediction markets increasingly frame the race as Rieder versus Warsh.
Trump's call for a “Greenspan-like” Chair is telling. Greenspan relied on market judgment and flexibility rather than rigid rules or heavy guidance. In today's uncertain environment, markets care less about a January hold and more about how the next Chair will respond when conditions change—making the leadership decision more important than this FOMC meeting.
Rick Rieder: The Hidden Dove — The "Rieder Trade"
Rick Rieder is BlackRock's Chief Investment Officer of Global Fixed Income, overseeing one of the world's largest bond platforms. His profile has risen sharply after Trump praised him publicly and Hassett spoke favorably, with prediction markets elevating him into the top tier of contenders. Markets increasingly view Rieder as a Greenspan-like, market-native policymaker, fluent in financial conditions rather than rigid rule-setting.
Rieder's policy beliefs are centered on restoring economic velocity through housing, labor, and financial conditions:
– Mortgage / Fintech: $Rocket (RKT.US)$ stands out as the primary beneficiary of a potential 5% mortgage refinance wave, while $Opendoor Technologies (OPEN.US)$ offers higher-beta exposure to improved housing activity and turnover.
– Homebuilders: $D.R. Horton (DHI.US)$ and $Lennar Corp (LEN.US)$ benefit directly from improved affordability and increased housing transactions as lower rates unlock demand.
– Small-Caps / Cyclicals: $Russell 2000 Index (.RUT.US)$ and $Caterpillar (CAT.US)$ stand to gain from lower financing costs and Rieder's emphasis on restoring productivity and economic velocity.
Kevin Warsh: A Discipline-First Fed — The "Warsh Trade"
Kevin Warsh is a former Federal Reserve Governor widely viewed as a credibility-first policymaker, emphasizing discipline, price discovery, and institutional credibility, even if that implies near-term market adjustment.
Warsh's policy beliefs are centered on restoring monetary credibility and long-term stability, with a strong emphasis on balance-sheet discipline and forward-looking policy design:
– Policy stance: Warsh argues against mechanical, data-dependent policymaking, favoring forward-looking, judgment-based decisions.
– Inflation philosophy: He has been explicit that inflation is a policy choice, calling for a return to the Fed's core mandate.
– Balance sheet: Warsh is a consistent critic of QE, favoring QT and a materially smaller Fed balance sheet.
– Communication: He questions heavy forward guidance, arguing that excess messaging constrains flexibility.
The "Warsh Trade" reflects expectations of a discipline-first, "Sound Money" Fed, with an emphasis on restored price discovery and capital allocation to productive real assets rather than financial engineering.
– Banks / Financials: $JPMorgan (JPM.US)$ benefits most as Warsh's balance-sheet discipline pushes higher term premia and a steeper curve, lifting margins; $Bank of America (BAC.US)$ and $Wells Fargo & Co (WFC.US)$ also gain as lending economics normalize.
– Insurance: $Berkshire Hathaway-B (BRK.B.US)$, $MetLife (MET.US)$, and $Prudential Financial (PRU.US)$ benefit from higher, more stable real yields as Warsh's opposition to financial repression improves reinvestment returns.
– Value / Industrials: $Caterpillar (CAT.US)$ and $Deere (DE.US)$ gain as Warsh's emphasis on capital discipline and reduced stimulus rewards productive investment over financial engineering.
January is likely quiet on rates. What matters more is who shapes the next Fed framework. A Rieder Fed may lean toward supporting housing and growth. A Warsh Fed may emphasize discipline and clearer price signals. Which direction do you think the Fed is heading — and what will you be watching most closely?
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