Financial markets have sharply dialed back expectations for a Federal Reserve interest rate cut at the upcoming March policy meeting. Data from derivatives markets indicates traders assign an 83% probability that the central bank will maintain its benchmark rate, currently in a range of 3.5% to 3.75%. This shift follows President Trump's nomination of former Fed Governor Kevin Warsh to lead the institution, injecting fresh uncertainty into the monetary policy landscape.
The recalibration is rippling through risk-sensitive assets. Bitcoin recently declined 0.7% to $69,106, while ether fell 0.9%. Both cryptocurrencies have retreated from recent highs as investors digest the implications of a potential leadership change at the Fed for market liquidity and risk appetite.
Repricing the 2026 Trajectory
Beyond the immediate meeting, the longer-term outlook is also shifting. Betting markets now anticipate only two quarter-point rate cuts for the full year 2026, a reduction from prior expectations of three cuts. This adjustment reflects the market's struggle to gauge Warsh's policy leanings, with analysts divided on whether he would adopt a more dovish or hawkish stance compared to the current leadership.
The CME FedWatch Tool, which tracks expectations via Fed funds futures, aligns with this cautious view, showing just a 17% implied chance of a cut in March. Investors are now focused on upcoming economic data, including inflation and jobs reports, for clues on when the easing cycle might resume.
Analysts Weigh In on Warsh's Potential Impact
Opinion among commentators is split. Some, like investor Anthony Pompliano, suggest Warsh could move aggressively to lower rates, potentially triggering a significant market rotation. Others point to his historical reputation for inflation vigilance. U.S. Treasury Secretary Scott Bessent added that any changes to the Fed's balance sheet policy would likely be gradual, regardless of the chair.
The broader economic signals remain mixed. A recent New York Fed survey showed one-year inflation expectations easing to 3.1%, yet household financial anxiety persists. With the March meeting also set to deliver updated economic projections and the influential "dot plot," traders are bracing for continued volatility as the Warsh nomination and data flow reshape the policy narrative.
