Markets enter Fed week in a state of rising anxiety as investors brace for an expected 25 bp rate cut, yet face an unusually divided Federal Reserve and uncertainty over who will replace Chair Powell. While the cut itself is almost fully priced in, the real market mover will be Powell’s tone and the updated dot plot, especially expectations for 2026. Current pricing points to roughly 77 bp of total easing through end-2026, meaning only two more cuts after December are in the curve. Analysts broadly expect a semi-hawkish message—suggesting the bar for further cuts will be higher—so any dovish nuance could spark volatility. Bond markets are positioning for a shallow easing cycle by reducing long-duration exposure and rotating into intermediate maturities. Speculation around Powell’s potential successor also adds tension: leading candidate Kevin Hassett has publicly argued for continued rate reductions, but markets remain unsure how consistently dovish his leadership would be.

The cautious mood has kept global equities largely flat, with European futures signaling a subdued open, though chip stocks may see added attention after the U.S. approved Nvidia’s H200 AI processors for export to China with a 25% fee. The Australian dollar traded choppily after the RBA held rates steady as expected, while the yen stabilized following news of a major earthquake in Japan, with tsunami warnings later lifted. Overall, markets remain in wait-and-see mode, with Powell’s press conference and the Fed’s guidance set to determine whether sentiment stabilizes or volatility resurfaces.