--- title: "War Ignites Inflation, Warsh Faces First Hurdle: How to \"Restrain the Hawks\"?" type: "News" locale: "en" url: "https://longbridge.com/en/news/287917958.md" description: "Tensions in the Middle East have pushed up oil prices, while U.S. inflation remains high and sticky. Market expectations for rate cuts have shifted to bets on rate hikes. Newly appointed Fed Chair Warsh faces a dual dilemma of internal hawkish pressure and external political stress. Some economists point out that the current policy environment is actually accommodative, and holding rates steady may be the best outcome Warsh can achieve" datetime: "2026-05-28T12:26:01.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/287917958.md) - [en](https://longbridge.com/en/news/287917958.md) - [zh-HK](https://longbridge.com/zh-HK/news/287917958.md) --- # War Ignites Inflation, Warsh Faces First Hurdle: How to "Restrain the Hawks"? Newly appointed Federal Reserve Chair Warsh faces a severe test right from the start. The policymaker, who once won trust with a clear "rate cut roadmap," now confronts a completely opposite situation—how to curb rising market bets on rate hikes amid reigniting inflation and a hawkish shift among colleagues. According to Bloomberg, data expected to be released this Thursday is projected to show that the Fed's preferred inflation gauge—the Personal Consumption Expenditures (PCE) price index—rose 3.8% over the past 12 months, nearly two percentage points above the 2% policy target. Meanwhile, energy shocks triggered by the situation in the Middle East have further intensified inflationary pressures. Market expectations for rate cuts have largely dissipated, with investors beginning to bet on the possibility of rate hikes instead. Notably, Warsh's predicament is complicated by political factors. Just hours after he presided over his swearing-in ceremony, Trump publicly stated that interest rates would fall "soon," reigniting concerns about the Federal Reserve's independence. Stephanie Roth, Chief Economist at Wolfe Research, stated bluntly: > **"The market no longer has expectations for rate cuts. Warsh's biggest challenge this year is to get the market to digest the already priced-in expectations for rate hikes."** ## Inflation Exceeds Expectations, Window for Rate Cuts Fades **Persistent heating of inflation has become the core driver reversing market expectations.** The Consumer Price Index (CPI) in April recorded its largest single-month increase since 2023, prompting investors to quickly shift their bets from rate cuts to rate hikes. Long-term inflation expectations are also under pressure. The University of Michigan's May consumer survey showed that consumers' annualized inflation expectations for the next 5 to 10 years rose to 3.9%, up from 3.5% in April, hitting a seven-month high. Inflationary pressure stems largely from energy prices. Analysts believe that even if the conflict in the Middle East ends, energy costs are expected to remain high for several months. At the same time, large-scale investments in the artificial intelligence sector are also driving up service costs and core inflation pressures. Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, stated: **"Warsh has no room left to build a case for rate cuts; he must focus his energy on resisting the growing pressure for tighter policy from both colleagues and the public."** ## Hawkish Voices Gather, June Meeting Could Be a Turning Point **Currently, the hawkish shift within the Federal Reserve is quite evident.** In recent weeks, several officials have successively issued warnings that the central bank can no longer hint that rate cuts are the next step, but should clearly signal the risks of policy tightening. This stands in stark contrast to the stance at the beginning of the year, when officials expected continued accommodation in 2026. Particularly noteworthy is the shift by Federal Reserve Governor Christopher Waller. He vigorously pushed for rate cuts in 2024 and 2025, but now supports sending a signal that the next rate change could also be a hike. Diane Swonk, Chief Economist at KPMG, commented: "Inflation has become sticky, and Warsh is walking into a narrative shift." The June policy meeting could become a key node. Officials may remove the so-called "accommodative bias" language from the policy statement and submit new economic projections. **The market expects that the new projections will raise inflation forecasts and delay the timeline for future rate cuts.** ## Policy Already Accommodative, Holding Steady May Be Warsh's "Optimal Solution" Some economists have raised deeper questions about the current policy stance. Matt Luzzetti, Chief U.S. Economist at Deutsche Bank, warned that **the Federal Reserve may have lowered interest rates to too low a level in 2024 and 2025, making the policy environment biased towards accommodation.** This concern is particularly prominent against the backdrop of reigniting inflation—rising prices lift the neutral rate, thereby making existing policy more stimulative in actual effect. Fabio Natalucci, CEO of the Andersen Institute for Finance & Economics and a former official at the Federal Reserve and the International Monetary Fund, further pointed out: "If nothing is done, it is effectively easing policy." Currently, most Federal Reserve officials still believe policy is in the neutral or slightly above-neutral range. Robert Sockin, Chief U.S. Economist at PGIM, approached the issue from more realistic constraints, stating that the threshold for rate hikes is inherently higher than for rate cuts, "a judgment that held true even before Warsh took office." This means that in the current complex environment, maintaining unchanged interest rates may already be the optimal result Warsh can strive for. ### Related Stocks - [OXY.US](https://longbridge.com/en/quote/OXY.US.md) - [IEO.US](https://longbridge.com/en/quote/IEO.US.md) - [IXC.US](https://longbridge.com/en/quote/IXC.US.md) - [VDE.US](https://longbridge.com/en/quote/VDE.US.md) - [XLE.US](https://longbridge.com/en/quote/XLE.US.md) - [OIH.US](https://longbridge.com/en/quote/OIH.US.md) - [BNO.US](https://longbridge.com/en/quote/BNO.US.md) - [CRAK.US](https://longbridge.com/en/quote/CRAK.US.md) - [XOP.US](https://longbridge.com/en/quote/XOP.US.md) - [UCO.US](https://longbridge.com/en/quote/UCO.US.md) - [USO.US](https://longbridge.com/en/quote/USO.US.md) - [DB.US](https://longbridge.com/en/quote/DB.US.md) - [DBK.DE](https://longbridge.com/en/quote/DBK.DE.md) - [03KB.DE](https://longbridge.com/en/quote/03KB.DE.md) - [DPB.DE](https://longbridge.com/en/quote/DPB.DE.md) ## Related News & Research - [Fed faces pressure as inflation hits three-year high](https://longbridge.com/en/news/287954590.md) - [The new oil order that could emerge from an Iran deal](https://longbridge.com/en/news/287611416.md) - [How limited tanker crossings could recast the conflict](https://longbridge.com/en/news/287422346.md) - [ROI-ENERGY WATCH: Oil up again on fresh strikes in Iran](https://longbridge.com/en/news/287947088.md) - [Memorial Day gas prices hit four-year high nationwide](https://longbridge.com/en/news/287545723.md)