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2h ago

Warsh Takes Helm at Fed as Markets Price Higher for Longer

His first weeks will show whether a plan to curb Fed communication and use the balance sheet can prevail against a committee that now expects rates to remain high because rising inflation and energy shocks have cut room for rate cuts.

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U.S. President Donald Trump arrives with incoming Federal Reserve Chair Kevin Warsh for Warsh's swearing-in ceremony at the White House in Washington, D.C., U.S., May 22, 2026. REUTERS/Jonathan Ernst
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Overview

  • Kevin Warsh was sworn in as Federal Reserve chair on May 22 and immediately inherited a market that has pushed back expectations for rate cuts and priced in the chance of a year‑end increase.
  • Minutes from the April FOMC showed officials removed language about being 'nimble' and a majority signaled policy may need to stay restrictive if inflation stays above 2 percent, with several members dissenting.
  • Bond markets have reacted quickly by sending short‑term yields higher and flattening the yield curve, a move traders interpreted as a shift from expecting cuts to expecting rates to stay elevated.
  • Warsh has said he will govern in a Greenspan‑style way, reduce forward guidance, limit public comments, and focus on shrinking the Fed’s balance sheet; those preferences conflict with committee members raising the prospect of tighter policy.
  • The near‑term test is the June 16–17 FOMC meeting, and officials warn that the Iran conflict and higher energy prices have widened inflation pressures and narrowed Warsh’s room to pursue the rate cuts he previously advocated.