No Rate Cuts, No Relief: Markets Bet on Fed Hikes as Warsh Steps In

TLDR

• Kevin Warsh was sworn in as Federal Reserve chairman on Friday, replacing Jerome Powell after a 54-45 Senate vote.
• Investors now see zero chance of a rate cut in 2026, with rate hike odds rising sharply.
• CME FedWatch data shows a 70% chance of a rate increase at the December 2026 FOMC meeting.
• Some economists believe the Fed could raise rates by up to 100 basis points if inflation stays above 2%.
• Warsh’s first policy meeting as Fed chair is scheduled for June 16-17.

Markets have shifted sharply toward expecting rate hikes in 2026 now that Kevin Warsh has officially taken the helm of the Federal Reserve.

Warsh was sworn in on Friday at the White House by Supreme Court Justice Clarence Thomas. He replaces Jerome Powell after a narrow 54-45 Senate confirmation vote that split along party lines.

Trump had faced weeks of criticism from Democrats who questioned whether Warsh would protect the Fed’s independence. Senator Elizabeth Warren had called him a “sock puppet” for the president. Warsh rejected that label and pledged to make independent decisions on monetary policy.

Markets Price In Hikes, Not Cuts

Despite Trump’s desire for lower rates, markets are pricing in a very different outlook. According to CME FedWatch data, there is now a 0% chance of a rate cut anywhere in 2026.

Only 3.5% of investors see a small rate hike at the next FOMC meeting on June 17. But by July, the probability of a hike rises to 17%.

The most watched data point is December. Around 67% to 70% of investors now expect a rate increase at the final FOMC meeting of 2026. The most likely outcome is a hike to the 375-400 basis point range, which would represent a 25 basis point increase from the current target of 350-375 basis points.

Some economists go further. If inflation stays above 2%, they believe the Fed could raise rates by as much as 100 basis points in total. That would reverse the three rate cuts made during 2025.

Fed Shifted Tone Before Warsh Arrived

The minutes also showed that many participants wanted to remove language that signaled a bias toward cutting rates.

Inflation concerns are partly tied to rising oil prices, an AI-driven demand surge, and ongoing tensions linked to the US-Iran conflict.

Longer-term markets are also moving. For June 2027, traders see only a 15.8% chance that rates stay at 350-375 basis points. Instead, 33.4% expect rates at 375-400 and another 30.2% expect 400-425. Some bets even reach as high as 500-525 basis points.

Rate hikes are generally negative for risk assets. Bitcoin, crypto, and equities could all face headwinds if borrowing costs rise over the next year.

Warsh’s first policy meeting as chairman begins June 16.

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