Warsh In, Rate Cuts Out as Iran War Fuels Inflation
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- Kevin Warsh was sworn in as Fed Chair on May 22, 2026, inheriting a central bank grappling with inflation spikes fueled by the ongoing Iran War and surging oil prices.
- Investors have reversed expectations for near-term Fed rate cuts, with the CME FedWatch Tool showing a 43% chance of a rate hike by December, up from earlier assumptions of easing.
- The April FOMC meeting ended in an 8-4 vote to hold rates steady at 3.50%–3.75%, marking four dissents and a clear shift toward a more hawkish stance amid rising inflation concerns.
- Trump nominated Warsh expecting aggressive rate cuts to 1% or lower, but publicly stated at the swearing-in that he wants the Chair to be 'totally independent' and told him, 'Don’t look at me.'
- Warsh, while historically dovish and supportive of lower rates and a smaller balance sheet, faces resistance from FOMC members as bond yields hit 4.56%—the highest at the start of a Fed Chair’s term since 1987.
- Analysts including Ben Fulton and Eric Diton note the Fed is signaling 'higher for longer' rates, with inflation risks from energy and tariffs outweighing AI-driven efficiency hopes for now.
Why it matters: Markets priced in aggressive rate cuts under Warsh due to his history and Trump’s demands, but the Fed’s actual stance—backed by data and geopolitical inflation—shifts borrowing costs higher, increasing financial pressure on consumers and businesses just as the economy faces stagflation risks.
