Check our advice monitor at ProFarmer.com for updates to our marketing plan.
Prospects for a rate cut by year-end all but evaporated Wednesday following what appeared to be a contentious Federal Reserve policy meeting that was followed by Jerome Powell’s final news conference as chair – but for now likely not his final meeting as a member of the central bank’s board of governors.
Let’s unpack what happened:
There was little doubt the Fed was going to leave the fed-funds rate unchanged at a range of 3.25% to 3.5% – and that’s exactly what policy makers did. But in a twist, there were four dissents – the most at a policy meeting since 1992. One dissenter, Fed governor Stephen Miran backed a rate cut, as he has in the past. The surprise was that three regional Fed presidents – Neel Kashkari of Minneapolis, Beth Hammack of Cleveland and Lori Logan of Dallas – dissented not against the decision to remain on hold, but against language in the policy statement but because they “did not support inclusion of an easing bias in the statement at this time.” In other words, they don’t want the Fed signaling that a rate cut remains more likely to be the next move than a rate hike.
That prompted an immediate reaction in the rates market. Fed-funds futures traders shifted their bets. On Tuesday, the fed-funds futures markets had priced in a roughly 20% probability of a rate cut of 25 basis points or more by year-end and an 80% probability of rates remaining on hold. After the Fed meeting, the market is pricing in just a 3.2% probability of a quarter-point cut by December, while the probability of fed-funds rate staying unchanged rose to 85%.
Moreover, the market went from pricing a 0% probability of a rate hike to a roughly 12% probability that the fed funds rate will be higher than it is now by year-end.
- Consider it a warning shot: The trio of dissents over the easing bias is being read as a possible signal to Kevin Warsh, President Trump’s nominee to replace Powell as chair next month. The dissenters may have wanted it included “as a shot across the bow,” in an effort to “make it clear that they will not be easily swayed to his way of thinking that rates in time can be lowered,” said James Knightley, chief international economist at ING, in a note.
- Takeaway: The dissents – and the market pricing around future rate moves – are reminders that while the Fed chair is powerful, the central bank is a deliberative body that’s run by committee. The oil and fertilizer shock created by the Iran war has heightened policymakers’ inflation fears, which the market sees outweighing President Trump’s pressure campaign for lower interest rates.
Sticking around: In a news conference following the decision, Powell announced that he plans to remain on the Fed’s board of governors after his term as chair expires next month. He can do that because his term as a member of the board runs until 2028. It is, however, a break with precedent, which has seen past chairs leave the Fed once their term at the helm has expired.
“My concern is really about the series of legal attacks on the Fed, which threatens our ability to conduct monetary policy without considering political factors,” Powell said at his news conference. Powell had previously said he would remain on the board until a federal criminal probe into his testimony about the Fed’s headquarters renovation was fully resolved – a probe that Powell and others, including Republican Sen. Thom Tillis of North Carolina – characterized as a bad-faith effort to pressure the Fed.
The Justice Department last week said it would close the investigation, leaving it to the Fed’s inspector general, but reserved the right to renew it later. Powell on Wednesday made clear that wouldn’t be enough to convince him to leave the board. Powell said he’d take a low-key approach as he remained on as governor, but the move denies Trump the ability to replace Powell on the Fed board.
Trump slammed the decision, writing on TruthSocial: “Jerome ‘Too Late’ Powell wants to stay at the Fed because he can’t get a job anywhere else – Nobody wants him.”
E15 off the table?: A House vote on a farm bill and legislation that would allow year-round sales of E15 – gasoline blended with 15% ethanol – appeared unlikely as negotiations on Capitol Hill turned sour, Agri-Pulse reported.
“There’s still some negotiation, deliberation and consternation, I would say, about various provisions,” House Speaker Mike Johnson, R-La., told reporters on Wednesday, the report said. Johnson said “a little bit more time” is needed, especially on E15, without elaborating on specific timing.
- “Some refiners and their allies in Congress are pushing back on proposal that would drastically reduce number of small refineries eligible for exemptions from annual biofuel quotas,” said Cole Martin, a reporter for Argus Media, in a post on X.
Politico reported that Republican leaders saw a fierce backlash from some GOP members who took issue with parts of the farm bill or were asking to add their amendments and priorities to the package. Other hard-liners fought against a plan to tack onto the farm bill a proposal to allow year-round sales of E15 fuel, the report said.
Extended war: Oil futures extended their rise Wednesday after the Wall Street Journal reported that President Trump told aides to prepare for an extended blockade of Iranian ports. The Strait of Hormuz has been largely closed since the end of February, taking hundreds of millions of barrels of crude off the market. U.S. data showed a sharp drop in domestic crude inventories last week and record crude exports at 6.4 million barrels a day. WTI crude rose 7% to settle at $106.88 a barrel, while Brent advanced 6.1% to $118.03 a barrel.
- The push back to war-time highs for crude is amplifying inflation concerns. Treasury yields were back on the rise, with the rate on the 10-year note trading near 4.415%, its highest level in a month.
Don’t miss these must-reads: