All eyes turn to new Fed chair Kevin Warsh’s stance rather than monetary policy decision

The Fed is expected to keep rates unchanged at a two-day meeting Tuesday and Wednesday, while the attention is concentrated on new chair Kevin Warsh, as he will be conducting his first monetary policy decision meeting.

The Fed is expected to hike rates once by the end of the year due to strong employment and rising inflation, though the likelihood has somewhat eased amid positive geopolitical developments.

Markets will be on the lookout for signals about future policy in Warsh’s remarks after the meeting -- the volatility in the markets could rise based on the signals.

Philip Marey, senior US strategist at Rabobank, told Anadolu that Warsh will “remove the easing bias” from the bank’s policy statement and take the 2026 rate cut projection off the dot plot, given that the US’ consumer price index (CPI) rose 4.2% in May and nonfarm payrolls averaged an increase of 188,000 during the last three months.

“Therefore, a more interesting aspect of Warsh’s first post-meeting press conference could be his analytical framework to interpret the supply shock from the Middle East. This would give us an idea of how he wants to convince the FOMC ( Federal Open Market Committee) of cutting rates in the next 12 months,” he said. “Moreover, it may be interesting to see how he is going to articulate his aversion to data dependence, forward guidance and near-term forecasting in his press conference.”

Marey stated that while the Strait of Hormuz bottleneck persists and the US labor market strengthens, the Fed is expected to maintain rates steady for the remainder of 2026 and issue two rate cuts in 2027.

James Knightley, chief international economist at ING, told Anadolu that the improving economic momentum and rising US inflation could prompt the Fed to assess the possibility of future rate hikes, while Warsh may not give a definitive answer at his first news conference.

Knightley said the US economy is less affected by Middle East risks than most others due to its energy independence, but it is still not completely immune, noting that business surveys point to an economic growth of 2% -2.5% despite rising inflation as new jobs are created and stock markets reach new records.

He noted that the Fed is expected to maintain its monetary policy but a statement pointing to the possibility of a future rate hike may come to the fore.

“We doubt that Kevin Warsh will choose to dissent against all 11 other members by voting for a rate cut, despite his appointment as chair by a president who has demanded lower rates,” he said. “In the news conference, he will acknowledge that economic conditions do not justify rate cuts at this time.”

“Nonetheless, he could reiterate his view that, in time, tech investment will boost US productivity, meaning faster growth without generating inflation -- that would imply a lower neutral interest rate that justifies lower policy rates over the medium to longer term,” he added.

*Writing by Emir Yildirim