May Jobs Blowout Tilts Fed Hawkish as Warsh Takes Helm
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- U.S. May jobs report showed 172,000 net gains—more than double economist consensus—keeping unemployment steady at 4.3% and pushing three-month average hiring back to pre-COVID pandemic levels.
- Investors lifted the implied odds of a December rate hike to roughly 70% from about 50% on Thursday, in the immediate wake of the release.
- Cleveland Fed President Beth Hammack said inflation "is high, moving higher" and that it may soon be appropriate to act, calling the economy "right around my definition of full employment."
- Fed Governor Christopher Waller said he "can no longer rule out rate hikes further down the road if inflation does not abate soon," reversing his 2025 support for cuts.
- New Fed Chair Kevin Warsh, who argued before his nomination that Trump's policies would allow rates to fall, now faces an FOMC where three policymakers dissented in April in favor of a hawkish shift.
- Inflation remains more than a percentage point above the Fed's 2% target and is on track for a sixth straight year above it, with the IMF now pushing its return-to-target forecast to the end of 2027.
- The Iran war, now in its fourth month, continues to drive oil prices higher; Kansas City Fed President Jeffrey Schmid said inflation has "crept up into the 3.50% range" and that rate hikes may be needed.
Why it matters: Warsh, who argued before his nomination that Trump's policies would let rates fall, now inherits a Fed where a growing majority of policymakers are openly contemplating hikes — directly counter to the president's wishes. With the November midterms likely hinging on the economy, a Fed that pivots to tightening under Warsh would constrain Trump's economic messaging and sharpen the political stakes around the vote.
