Markets Price Rate Hike as Fed Chair Kevin Warsh Takes Helm Amid Iran-Driven Inflation

Bond traders price a 25-basis-point Fed rate increase by year-end, moving swaps to 3.75-4.00% from the current 3.50-3.75%. The shift followed Fed Governor Christopher Waller’s comment that the next statement should “make it clear that a rate cut is no more likely in the future than a rate increase.” Treasury yields rose, with the two-year note hitting 4.14%, its highest since February 2025.

Bloomberg

Kevin Warsh was sworn in as the 17th Fed chair on Friday after warning the Fed had not cut rates enough and citing AI-driven productivity gains. Market expectations shifted when the United States and Israel struck Iran in late February, closing the Strait of Hormuz, curbing oil flows and raising gasoline prices. The energy shock lifted headline and expected inflation.

Bloomberg

April’s CPI rose 3.8% year-on-year. The University of Michigan’s May survey showed inflation expectations of 4.8% for one year and 3.9% over five-to-ten years. Treasury yields climbed, with the 30-year rate hitting 5.20% before easing to 5.06%. Spot gold fell to $4,506.87 per ounce, down about 15% since the Iran conflict began.

Gold Drops as Fed’s Waller Says Next Move Likely to be Rate Hike

Waller said the Fed should “make clear the central bank’s next interest-rate move is just as likely to be an increase as a cut,” stressing patience. Warsh has not spoken on policy since his swearing-in, and his confirmation hearing avoided near-term rate questions. President Donald Trump warned he would be disappointed if Warsh did not lower rates immediately.

Bloomberg

Before Warsh’s appointment, markets expected at least two quarter-point cuts in 2026, a view reinforced by his pre-appointment remarks about AI-driven growth. Trump’s disappointment at a possible lack of immediate cuts underscores pressure for easing, while Fed minutes show a growing faction favoring hikes if inflation stays above 2%.

Bloomberg

Traders price a hike even though the April minutes only note that “a rate hike could become appropriate” if inflation persists, leaving timing uncertain.

Gold Drops as Fed’s Waller Says Next Move Likely to be Rate Hike

• “Waller’s latest remarks confirm the hawkish shift at the Fed,” — Krishna Guha, Evercore ISI

Bloomberg

• “His discussion of inflation was across the board hawkish.” — Krishna Guha, Evercore ISI

Bloomberg

• “While the two sides appear to be a meaningful distance apart in their respective demands, the fact that there is an ongoing dialogue offers some solace,” — Ian Lyngen, BMO Capital Markets

Bloomberg

• “Waller said he supports making clear the central bank’s next interest-rate move is just as likely to be an increase as a cut, as the energy shock from the Iran war pushes up prices.” — Christopher Waller, Fed Governor

Gold Drops as Fed’s Waller Says Next Move Likely to be Rate Hike

The Fed’s next policy decision is set for June 17, with officials expected to hold rates steady pending fresh data. PCE releases and progress in U.S.–Iran talks will shape the next move.

Bloomberg