Fed Rate Hike of 100 Bps Back In Focus As Kevin Warsh Takes Office

Kevin Warsh has officially stepped up as the new chair of the U.S. Federal Reserve, replacing Jerome Powell. However, the markets are now increasingly betting on more Fed rate hikes, rather than cuts.

Kevin Warsh Sworn In As The Federal Reserve Chairman

Warsh took the oath of office on Friday after a narrow 54-45 margin vote in a party-line split in a contentious Senate confirmation process. His Fed appointment follows an ongoing discussion among investors about persistent inflation pressures stemming from the Iran conflict.

In addition, economists are concerned around rising oil prices and demand associated with the artificial intelligence boom. Now, experts believe that despite the new leadership, the Fed rate hikes are imminent.

At the White House ceremony, President Donald Trump tried to calm the issue of political influence on the Fed. He told Warsh: “I want Kevin to be totally independent and do a great job. Don’t look at me and don’t look at anybody. Just do your own job.”

The comments come after weeks of criticism from Democrats over whether Warsh would ensure the Fed’s independence. Senator Elizabeth Warren had previously claimed he was a “sock puppet” of Trump during the president-elect’s confirmation hearing. However, Warsh dismissed that charge and did promise to make independent decisions on Fed’s monetary policy.

Fed Rate Hike Odds Surge Indefinitely

Meanwhile, traders are starting to brace for a more hawkish case of the Fed. Some economists think that the Fed rate hikes will see an increase of 100 basis points if inflation continues to soar beyond its 2% target. The expectation comes as analysts expect the central bank to reverse the three rate cuts of 2025.

Minutes from the April meeting of the Federal Open Market Committee (FOMC) indicated that policymakers grew more concerned. Officials said that “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.”

The markets are pricing in major Fed rate increases, according to CME FedWatch data. At the December 2026 meeting, the probability of a rate increase is 70.1%. here, the 375-400 basis point range has the highest probability of 42.5%. If materialized, it would signal a 25 bps hike.

There’s also an increased degree of expectation for tighter policy in longer-term projections. The FedWatch probabilities for a pause during the June 2027 meeting are only 15.8% for a rate of 350-375.

Instead, markets are now pricing in a 33.4% chance that rates will reach 375-400 bps and a 30.2% chance that they will end at 400-425 bps in June next year. The market even offered a probability of higher ranges up to 500-525 basis points.

The minutes also showed that “many participants indicated that they would have preferred removing the language” for an easing bias. It shows the Fed’s dramatic turnaround from previous projections of rate cuts this year.

Warsh’s first Fed policy meeting as Chairman will be June 16-17.