Kevin Warsh, recently confirmed as the new Federal Reserve Chair, is poised to oversee his first Federal Open Market Committee (FOMC) meeting. Markets are keenly watching for any signals on the direction of interest rates. Despite Warsh's previous dovish statements during his confirmation hearings, the consensus from economists and market analysts suggests he will likely adopt a neutral stance, or even lean towards rate hikes, rather than cuts.
The Fed is widely expected to keep its key interest rate at approximately 3.6%, where it has been since December. However, a significant change anticipated is the removal of language suggesting future rate cuts, replaced by more neutral wording. Several Fed policymakers have recently indicated that a rate increase is a more probable next step than a cut. The central bank will also release its quarterly economic projections, which are expected to revise the 2026 outlook from an initial projection of one rate cut to no cuts, and possibly one or two cuts in 2027.
Market-implied probabilities, as tracked by CME FedWatch, show a growing expectation for rates to remain steady. The likelihood of the policy rate finishing 2026 in the current range of 3.50% to 3.75% is approximately 65%. This hawkish repricing aligns with Warsh's stated policy preferences, which include skepticism towards forward guidance and a focus on accelerating balance-sheet runoff. Consumer sentiment has also fallen, with the University of Michigan index dropping to 49.8 in April 2026 from 61.7 in July 2025, and with May's CPI hitting a three-year high at 4.2%, well above the Fed's 2% target, making immediate rate cuts unlikely.
President Trump, who nominated Warsh, has consistently pushed for lower interest rates. However, with inflation concerns mounting and a strong labor market (unemployment at 4.3%), the Fed's primary objective of price stability is likely to take precedence. Some analysts suggest Warsh may leverage the upcoming meeting to build internal consensus on holding interest rates and removing the easing bias, thus giving him political capital to pursue his broader reform agenda, which includes changing how the Fed measures inflation and reducing its multi-billion-dollar balance sheet. Dallas Fed President Lorie Logan has warned that rate hikes might become necessary later this year, with traders pricing in a 60% chance of a Fed rate hike by October.
