US Federal Reserve Chair Kevin Warsh strongly reaffirmed the central bank’s commitment to combating “too high” prices, declaring the FOMC is fully dedicated to restoring 2% inflation. Speaking in Portugal alongside other major central bank heads, Warsh stressed price stability remains the priority amid inflation fueled by the US-Israel war on Iran.
The Fed’s preferred PCE gauge hit a three-year high of 4.1% in May. Warsh, chairing his first FOMC meeting last month, presided over a hawkish hold with projections leaning toward steady rates or even a possible hike later this year. The central bank had already paused its rate-cutting cycle in January due to tariff volatility and policy uncertainty under President Trump.
Warsh also highlighted AI’s potential to drive productivity and non-inflationary growth, positioning the US as a major beneficiary. He also reaffirmed the Fed’s independence following recent Supreme Court rulings blocking Trump’s attempts to exert pressure.
Trade analysis
Predictions continue to face strong headwinds from stubborn energy-driven inflation and Warsh’s hawkish tone.
Bullish (1-2 cuts) signals:
- Sticky core inflation or renewed energy price spikes
- Fed maintaining data-dependent caution without easing signals
Bearish (0-1 cuts) signals:
- Further hot inflation prints or Warsh’s continued hawkish rhetoric
- Resilient growth supported by AI productivity gains and strong jobs data
Warsh’s fresh commitment to 2% and rising inflation from the war keep odds tilted toward no easing. Traders need to watch oil prices and CPI/PCE metrics closely. Our base case remains 0 cut this year.