What Taimur Baig says on 'ultra-dovish' successor to US Fed Chair Powell, Trump & markets

Taimur Baig, Chief Economist at DBS Bank said a key question for 2026 is whether the US Federal Reserve (Fed) cut policy rate for just one more time or capitulate to the US President Donald Trump’s demands and take the Fed Funds Rate down to 3 per cent or lower.

Baig feels the US labour market is not about to crash and economic growth is unlikely to stall, with retail sales, investment, and other markers pointing to sustained GDP growth and inflation not about to ease.

"A potential ultra-dovish successor to Powell in 2H2026 could create a tussle within the Fed and with markets, causing concern across equities, govvies, fixed income, currency, and private markets,"  the DBS Group's Chief Economist said  in a note, adding that a divergence in market outcomes between the US and rest of the world would widen, opening many relative value trade opportunities. 

If the Fed Chair, who would succeed Jerome Powell turns ultra dovish and insists on cutting no matter what in the second half of 2026, one should expect a tussle between the authorities and the markets. 

"If fact, there could even be turmoil within the Fed, as many Fed officials would oppose such a move, in our view. If that were the case, the market will express its concern in the public equities, govvies, fixed income, currency, and private debt/equity spaces," Baig said.

For now, Baig sees higher chances of just one rate cut, at least through May, over the course of the three remaining meetings under Chair Powell. 

Baig said this would take place even if there is lots of noise from the White House. 

"From retail sales to investment, growth critical markers point to sustained GDP growth ahead, with demand likely to remain strong, and inflation not about to ease, owing to tariffs, immigration tightness, AI-related demand for energy, and tax cuts, the Fed’s window to keep cutting will narrow considerably," he said.

On Wednesday, the Federal Open Market Committee (FOMC), despite some handwringing, delivered along the lines of expectations of a dovish tilt this year, cutting rates steadily without making any meaningful progress in reducing inflation. 

Keeping its focus on the gradual cooling of the labour market, while noting sustained strength in economic activities, the FOMC went ahead with the argument that cutting rates now makes more sense than waiting for more data till the next meeting, Baig noted.