Just six words from new Fed Chair Kevin Warsh ended a lot of hopes for rate cuts at any point in the near future: “The Committee will deliver price stability.” That’s the final sentence in the Fed’s brief post-meeting statement.
The decisive way in which it was delivered was also interesting. Warsh didn’t say the Fed was “committed” to price stability. He didn’t say the Fed was “working toward” price stability. Instead, he said the Fed “will deliver” price stability.
That phrasing was no doubt deliberate, and the financial markets took it that way. Stocks moved sharply lower. The 2-year Treasury yield, which is often considered a loose proxy for Fed expectations, moved sharply higher.
The Fed Dot Plot — a quarterly report tracking where each Fed member projects future interest rates — also confirmed that the committee had put rate hikes back on the table in 2026 while nearly pricing out the possibility of a cut altogether.
Image source: Getty Images.
Warsh’s history as an inflation hawk
From the beginning of his tenure with the Fed committee in 2006, Kevin Warsh has built a reputation as an inflation hawk. In other words, inflation control came before all else.
A prime example came at the June 2008 Fed meeting. With the financial crisis underway and the system visibly cracking, Warsh told his colleagues that “inflation risks, in my view, continue to predominate as the greater risk to the economy.” While Wall Street was going into crisis mode, Warsh was concerned about price levels.
Markets had anticipated that Donald Trump would install a Fed chair who would support his desires for much lower interest rates. Those who thought Warsh would comply are probably thinking differently today.
The Dot Plot shift signals a hawkish Fed
The median federal funds rate projection for 2026 moved from 3.4% to 3.8%. Half of the committee members now expect at least one hike this year. Six of the 18 expect two or more. It’s not just Warsh talking about price stability. There’s a real possibility we could see a more aggressive step toward price stability this year.
But there’s little question that the Fed’s hawkishness comes at a time when the end of Iran war could allow for more dovishness if energy inflation drops substantially. It’s unlikely the Fed would consider it right now, but the door is open.
Warsh: The Fed screwed up
Warsh made one other interesting comment in the post-meeting presser.
“The commitment to deliver is strong, unanimous and unambiguous. And that’s, I think, an important message we’ve missed for five years, and we’re going to fix that.”
I’m not sure the market expected Warsh to throw Jerome Powell under the bus, but it’s pretty clear he doesn’t agree with past policy decisions.
All of Warsh’s statements taken together should deliver a clear message that the Fed won’t be coming to the market’s rescue any time soon. That’s a headwind for equity prices, although an end to the Iran war and continued strong earnings growth from the tech sector could offset some of that risk.
Either way, it looks like there’s a brand new Fed at the controls now.
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