MW Why the Fed could deliver one final sting to your portfolio before Powell's exit in May

By Mark Hulbert

Interest rates typically go up when a Fed chair steps down

Federal Reserve Chair Jerome Powell is in his final three months at the head of the U.S. central bank.

The odds of a fed funds rate hike by May, while perhaps small, are still greater than zero.

It's possible that U.S. interest rates will be higher in three months' time.

I base this not on an assessment of the economy's strength, the labor market or any of the other factors on which a data-dependent Federal Reserve says it focuses. Instead, this forecast is based on an analysis of the fed funds rate in the waning months of prior Fed chairs' tenures.

The context for focusing on this is that Jerome Powell is approaching the end of his tenure as Fed chairman. His term ends on May 15, and before that Powell will preside over just two more rate-setting committee meetings: March 18 and April 29.

Financial markets aren't expecting the fed funds rate to be higher by May. The CME's FedWatch tool currently gives a 78.5% probability that the fed funds rate will be unchanged when Powell steps down as chair, a 21.5% chance it will be lower - and 0% odds it will be higher.

Nevertheless, an analysis of the last months of prior Fed chairs suggests that the probability of a higher fed funds rate in three months, while perhaps small, is still greater than zero. And while the markets currently don't recognize any possibility of a rate hike, it's become clear that some Fed officials are actively entertaining that prospect. That's according to the just-released minutes of the January meeting of the Fed's rate-setting committee.

Determining the points at which past Fed chairs became lame ducks is not an exact science, needless to say. There is no limit on how long a person can remain a Fed chair, though every four years he or she must be renominated and approved by the Senate. Powell became a lame duck almost immediately after President Donald Trump was inaugurated in January 2025.

Read: The reason the U.S. economy is growing so fast - and why it might not slow down

A lame-duck Fed chair may focus more on cementing a reputation as an inflation fighter - and therefore be more inclined to raise rates.

For purposes of analyzing this history, I focused on the last three, six and 12 months of past Fed chairs' tenures. What I found is summarized in the chart above, which plots the course of the fed funds rate over each of these periods for all Fed chairs since 1951.

In almost all cases, the fed funds rate increased over these lame-duck periods. In the few instances when the fed funds rate fell, it was by only a tiny amount.

It is difficult to draw statistically robust conclusions from a sample of just seven Fed chairs. In fact, Powell has already bucked the historical averages by reducing rates three times over the past year - by a total of 75 basis points (0.75%). So his lame-duck behavior will be an outlier, regardless of what happens to rates between now and May.

The historical record here may show that being a lame duck insulates a Fed chair from political pressures. It's one thing to stand up to the president when you are seeking renomination, and quite another when it's clear that your time in office is done. A lame-duck Fed chair may focus more on cementing a reputation as an inflation fighter - and therefore be more inclined to raise rates.

Another possibility is that Powell won't cut rates between now and May as a gift to his successor, who would then be able to cut rates deeper and sooner. Notice that if that were to happen, rate hikes between now and May would be unlikely - and so would rate cuts.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Fed minutes reveal discussion of a possible rate hike if inflation doesn't cool

Plus: Fed honeymoon for Warsh? Briefly - then push comes to shove.

-Mark Hulbert

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February 19, 2026 07:46 ET (12:46 GMT)

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