Investors drop bold Fed rate-cut signal to Warsh

Key Points:

• Kevin Warsh, newly appointed Fed Chair as of May 22, is expected to be markets-friendly in the long term but not immediately, with investors hoping for rate cuts contingent on the resolution of the Iran conflict and easing inflation pressures.
• Rising oil prices due to the ongoing Iran War have increased inflation forecasts and bond yields, prompting some Fed officials and analysts to suggest the possibility of interest-rate hikes by the end of the year rather than cuts.
• Despite President Trump's expectations for Warsh to aggressively cut rates to support his monetary policy agenda, Warsh has emphasized Fed independence and a reform-oriented approach, avoiding direct discussions of rate cuts with Trump.
• The Federal Open Market Committee (FOMC) held rates steady in April amid inflation concerns, with a near 100% probability of maintaining current rates at the June meeting and a 43% chance of a hike by December, reflecting a cautious and data-driven stance.
• Experts note Warsh faces challenges balancing inflation risks and economic growth, especially given high Treasury yields and inflation pressures, but he is unlikely to compromise the Fed's independence or yield to political pressure for rate cuts.