UOB strategists Suan Teck Kin and Alvin Liew assess how a potential Kevin Warsh Fed chairmanship could shape United States (US) monetary policy and the Fed funds rate. They expect a pause through early 2026, then two cuts in June and 3Q, taking the Fed Funds Target Rate (FFTR) to 3.25% by end-2026, with risks from higher energy prices and labour softness.

UOB outlines cautious easing trajectory

“Expect gradual change, not shock therapy: FOMC consensus and the May leadership transition constrain abrupt policy shifts in the near term. Futures market is pricing in about 10bps cut to the Fed funds rate by Dec 2026. On our part, we still expect a Fed pause in early 2026 (including Apr FOMC), then two rate cuts in Jun and 3Q, taking FFTR to 3.25%.”

“Where does this leave the Fed funds rate in the over 6 to 12 months? For the next FOMC meeting (30 Apr), financial markets and we do not expect any change to the current Fed funds rate of 3.5-3.75%, which is likely to be the final meeting for current Chair Jerome Powell.”

“Over the next 6-9 months’ horizon, futures markets are pricing in an implied Fed funds rate of 3.54% at end-Dec 2026, meaning a cumulative rate reduction of approximately 10bps, i.e. a modest, gradual easing path rather than an aggressive one.”

“As such, we continue to expect a period of pause (including the Apr FOMC) followed by two rate reductions in Jun and 3Q26, with the expectations for more visible weakness in the labour market and consumer spending to emerge in the months ahead.”

“This would bring the terminal FFTR to 3.25% by year-end 2026, consistent with our view of a gradual normalization path.”

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