Hot jobs report puts Fed cuts further out of reach as Chair Warsh faces policy tests
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- Nonfarm payrolls added 172,000 jobs in May, with sharp upward revisions for prior months, weakening the case for Fed rate cuts.
- CME Group's FedWatch lowered the odds of a rate cut at the June 16‑17 meeting and raised the probability of a rate hike by the end of 2026 to about 70%.
- Christopher Waller warned that consumer and market psychology could shift inflation expectations higher, challenging Warsh's stance.
- Alberto Musalem said it is risky to rely on future AI‑driven productivity gains to solve today's inflation problem, countering Warsh's view.
- Lorie Logan argued that trimmed‑mean inflation measures can drop too many price increases, pulling the trimmed mean below the underlying inflation trend, questioning Warsh's reliance.
Why it matters: Investors see a lower chance of near‑term rate cuts, keeping yields higher, while borrowers lose the prospect of cheaper financing; the Fed’s internal debate may delay policy adjustments, affecting inflation outlook.
