Investors drop bold Fed rate-cut signal to Warsh

Investors drop bold Fed rate-cut signal to Warsh Mary Helen Gillespie Mon, May 25, 2026 at 1:03 AM GMT+7 6 min read CL=F WSFX.BO Is Kevin Warsh going to be a markets-friendly Fed Chair? But not in the short term, investors agree. They hope that the “regime change” Warsh promised during his nomination process will keep the U.S. economy as resilient as Warsh’s 18 new colleagues at the central bank say it is. And that includes Fed interest-rate cuts. But those assumptions are dependent on an end to the three-month Iran War that will cause energy price spikes to reverse and reduce inflation risk as a barrier to lower interest rates. Warsh took over the Chair role on May 22 -- the same day the Dow closed at a record high. But bond yields are rattling upwards and inflation forecasts are rising due to surging oil prices as the Iran peace process drags on. This is sparking signals from some Fed officials and many analysts, plus Wall Street banks, to suggest that the policy-making Federal Open Market Committee will reverse earlier assumptions of rate cuts in the short term and consider the strong possibility of interest-rate hikes as soon as the end of the year. This is definitely not what President Donald Trump was expecting when he nominated Warsh in January after a months-long campaign to find someone the president would see as a loyal Fed Chair who would follow his monetary policy agenda, which included slashing the benchmark Federal Funds Rate to 1% or less. WEBs Investments CEO Ben Fulton said, “the markets are absorbing the hawkish tones,’’ stemming from the central bank -- especially from the minutes of the April FOMC meeting released May 20 showing a definite shift of policymakers toward possibly tightening the cost of short-term borrowing in light of spiking inflation data. “The bond market is definitely showing signs that higher yields are required for the new narrative from the Fed,’’ Fulton told TheStreet in an email interview. “This is a baptism by fire for the historically dovish Kevin Warsh,’’ Fulton said. “Hopefully soon, we will see the Iran conflict be resolved, which should reduce some of the inflationary tones we are now experiencing.’’ Trump nominated Warsh, 56, after months of highly vocal criticism of former Chair Jerome Powell for not leading policymakers to approve drastic rate cuts in the benchmark Federal Funds Rate to 1% or less. The Federal Funds Rate controls short-term borrowing costs from Main Street to Wall Street. The president was adamant that the next Chair respond accordingly, and expectations were high when Warsh was nominated that the former Fed governor and Wall Street veteran would do exactly that. Warsh, who said he did not discuss rates with Trump, has campaigned for lower interest rates, a smaller Fed balance sheet, and a shift in communications strategy from forward-looking guidance. He also promoted the importance of Fed independence from executive authority. Warsh told the audience at his swearing-in ceremony at the White House May 22 that he was committed to leading a “reform-oriented Federal Reserve.” Neither he nor Trump mentioned interest rates. The president did set out to dispel expectations that Warsh would be, as some administration critics have said, his “sock pocket” to do Trump’s bidding and destroy the independence of the world’s largest and most influential central bank. “I want Kevin to be totally independent,” Trump said at the GOP star-studded ceremony in the East Room of the White House. “Don’t look at me. Don’t look at anybody.” The Fed’s dual mandate from Congress requires maximum employment and stable prices. Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral. Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity. The FOMC, in a decisive 8-4 vote on April 29, held the benchmark Federal Funds Rate at 3.50% to 3.75%. It was the first time in more than 30 years the FOMC vote reflected four dissents, three of which objected to language in the post-meeting statement that did not reflect the possibility of easing a restrictive stance due to inflation. It was the FOMC’s third pause after cutting rates by 75 basis points during its last three meetings of 2025 to boost a weakening labor market. Related: Fed officials double down on blunt rate-cut message The next FOMC meeting, Warsh’s first as Chair, is June 16-17. The widely-respected CME Group FedWatch Tool is predicting a near 100% probability that the central bankers will vote to hold rates steady then and, as I’ve reported, a 43% chance of a rate hike at the December meeting. Eric Diton, President & Managing Director at The Wealth Alliance, said “the Fed is clearly becoming more cautious, even more hawkish,” due to its inflation concerns tied to both energy prices and tariffs. Despite these headwinds, the ma

Investors drop bold Fed rate-cut signal to Warsh

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