Jay Powell’s Last Act: What Markets Should Expect from the Fed Now

As the June 2025 FOMC meeting approaches, the U.S. Federal Reserve finds itself at a critical inflection point—not just economically, but institutionally. With just eight scheduled meetings left in Jerome Powell’s term as Chair, markets are not only watching policy signals but also reading between the lines of a legacy in formation. The Fed’s updated Summary of Economic Projections (SEP), market rate expectations, and Powell’s public rhetoric all offer clues to a broader narrative: the twilight of a Fed Chair’s tenure often blends caution with calculated messaging.

Let’s explore three interconnected themes framing this week’s FOMC meeting and the broader arc of U.S. monetary policy over the next 11 months.

1. The Legacy Phase: Hawkish Tendencies in the Final Year

History shows that Fed Chairs often adopt a more hawkish tone in their final year, perhaps to cement their inflation-fighting credentials or reinforce the apolitical nature of the institution they lead. Powell appears to be no exception.

Historical Precedent:

• Alan Greenspan (Final 12 months ending Jan 2006): 4 rate hikes.
• Ben Bernanke (Final year to Jan 2014): Held rates, but initiated the tapering of asset purchases.
• Janet Yellen (Final 12 months to Feb 2018): 3 rate hikes.

Despite these moves, the S&P 500 posted strong gains during each of these final years, averaging a +15.9% return, underscoring markets’ ability to look past short-term policy tightening and toward broader macro conditions.

Powell’s Positioning:
His current reluctance to cut rates—even amid softer inflation prints and signs of labor market cooling—is consistent with this legacy-driven caution. It also reflects an effort to shield the Fed from political criticism, especially as election season heats up. His messaging on Wednesday should be interpreted through this lens: preserving institutional credibility, not necessarily pivoting policy direction.

2. Futures Say the Real Shift Comes After Powell

The bond market is signaling that any substantial rate-cutting cycle will likely begin after Powell departs. Current Fed Funds Futures (via CME FedWatch) paint a clear picture:

• Two cuts expected by end-2025 (41% probability).
• One more cut priced through April 2026, Powell’s final meeting.
• End-2026 expectations center on a terminal rate between 3.00–3.50%, just 75–100 basis points below the current range.

This implies a measured, not drastic, policy easing path. In other words, markets expect Powell’s successor to follow a similar strategic trajectory—not a dramatic policy U-turn. The under-10% odds of a 100+ bps rate drop post-Powell further support this steady-state view.

Investor Implication: Markets are betting on policy continuity, not disruption. The next Chair may adjust the pace, but not the playbook.

3. The SEP Puzzle: Mixed Signals Ahead

The updated Summary of Economic Projections (SEP) this week will be closely dissected for shifts in tone and substance. Looking back at the March 2025 SEP offers key benchmarks:

• Growth: The Fed already cut 2025 real GDP projections. Q1’s -0.2% print adds downward pressure, though the Atlanta Fed’s 3.8% Q2 GDPNow estimate may temper any aggressive revision.
• Labor Market: Unemployment (May: 4.2%) is creeping closer to the Fed’s 2025 projection (4.4%). With jobless claims rising, the labor picture is softening faster than previously forecast.
• Inflation: April PCE inflation surprised to the downside. But given earlier tariff-driven concerns, the Fed may opt for a “wait and verify” approach, holding 2025 PCE projections steady for now.

Likely SEP Changes:

• Slight downgrade to growth forecast.
• Modest increase to unemployment projection.
• Inflation outlook unchanged.
• Rate path remains at 2 cuts in 2025.

The challenge will be Powell’s press conference. Explaining a forecast that combines slower growth and softer labor markets with no increase in rate cuts will be challenging. Expect Powell to walk a fine rhetorical line—acknowledging risks, without opening the door to imminent easing.

Chair Powell appears determined to finish his term as a textbook example of what a central banker should be: data-dependent, inflation-focused, and institutionally independent. This doesn’t mean he’s blind to market signals or evolving conditions, but rather that he’s prioritizing credibility over short-term flexibility.

Much like the aging detective in a noir film—“one last case before retirement”—Powell seems intent on closing out his tenure with caution and purpose. Markets, for their part, have seen this movie before. And they know how it usually ends. The theme of selling America and buying the Rest of the World will continue for at least a few more months, irrespective of whatever the Fed does under Powell.