Futures traders are increasingly pricing in a Federal Reserve rate hike, not a cut, as Kevin Warsh prepares to take over from Jerome Powell. That market view runs directly against President Trump’s long-running demand for lower rates and puts the June 16-17 policy meeting under intense focus before it even begins.
According to the report, Trump spent the past year pressuring Powell over the Fed’s refusal to reduce borrowing costs and publicly called for rates to fall to 1%. Markets are now moving the other way. Fed funds futures suggest traders see tighter policy as the more likely first move under new leadership, leaving the incoming administration facing an uncomfortable gap between political expectations and market pricing.
Warsh Set to Take Office After Narrow Senate Vote
Kevin Warsh won Senate confirmation in mid-May 2026 by a narrow 54-45 vote and is expected to be sworn in around May 22, formally replacing Powell. While the White House has been looking for lower rates, the latest inflation data has made that path harder to defend.
During his confirmation hearings, Warsh told lawmakers he would keep politics out of monetary policy decisions and said Trump had not asked him to pre-commit to any rate move. The report also describes Warsh as an inflation hawk based on his earlier time as a central bank governor. Even so, he holds only one vote on the Fed’s 12-member voting committee, which means he cannot force a cut on his own.
April CPI at 3.8% Reshapes Rate Expectations
The main driver behind the repricing is inflation. The report says April CPI came in at 3.8%, changing the outlook for macro investors who had been watching for easier policy. Energy prices rose about 17.9% because of geopolitical disruptions in the Middle East, while shelter costs continued to keep core inflation well above the Fed’s 2% target.
That mix has pushed early rate-cut expectations close to the sidelines. Fed funds futures now show the probability of a December 2026 hike at nearly 51%. The odds rise to around 60% by January 2027 and 70% by March. At the same time, the probability of a cut at the next meeting has dropped to just 1%.
Bond Yields Also Point to a Tighter Path
The bond market is sending a similar message. The report says the 30-year Treasury yield remains above 5%, while the 2-year yield is still above the current 3.5% to 3.75% benchmark rate range. That pricing suggests investors see a central bank under pressure to respond to sticky inflation and energy-driven price shocks with tighter policy rather than lower rates.
The June meeting now stands as an early test of Fed independence under new leadership. If policymakers choose to raise rates in response to inflation and energy pressures, the conflict between the White House’s preference and the central bank’s policy stance could sharpen quickly.