Changing the Fed chair will not lead to a drastic rate cut? Traders are voting with real money: wishful thinking.

Market pricing is honest—even if Hassett takes the helm at the Fed, don’t expect policy to suddenly turn on the liquidity taps as some have implied. Why? Because fiscal policy is expanding rapidly, directly limiting the central bank’s room to maneuver.

There are now two possibilities: either the market is seriously underestimating the risk of continued easing in the second half of next year(which means risk assets are currently undervalued), or the market’s judgment is spot-on—the Fed will not be nearly as dovish next year, and policy will have very limited impact on stocks and the dollar.

Looking at the data, betting on a limited rate cut in 2026 actually makes sense. The key is: by the time the new chair actually takes over, the real interest rate may already be near zero—the monetary environment will have been loose enough, how much looser can it get?

The personnel issue is even trickier. Cleveland Fed’s Mester and Dallas Fed’s Logan—both recognized hawks—will become voting members in 2026. This means a likely 7-to-5 voting split, making it extremely difficult to push any policy forward. No matter how hard the new chair tries, facing such divisions will be a headache.