Key Takeaways:
Markets now price the Fed holding rates at 3.50%-3.75% through 2026, ending earlier bets on cuts. Kalshi and Polymarket traders have placed over $42M combined on no rate change at the June 17 Fed meeting.New Fed Chair Kevin Warsh’s hawkish stance on inflation and balance sheet keeps borrowing costs elevated.The April meeting drew the highest level of dissent since 1992, according to some reports, pointing to a divided committee with a hawkish lean. Markets took notice. Short-term Treasury yields climbed as rate-cut pricing was removed from the front end of the curve. The two-year yield moved higher while the ten-year recently held near 4.3%, reflecting a higher-for-longer environment that is now the prevailing assumption across Wall Street.
Warsh has also advocated for a faster reduction of the Fed’s balance sheet, which stands near $6.5 trillion to $6.7 trillion. Shrinking those holdings is central to what he calls a “regime change” at the Fed, one that pulls back the institution’s footprint and reduces market distortions built up over years of quantitative easing. He has also signaled a preference for fewer public statements from Federal Open Market Committee (FOMC) members and less reliance on the dot plot for forward guidance.
JPMorgan now projects zero cuts in 2026. Other brokerages have pushed their easing timelines into 2027. Some scenarios in futures markets include modest hike risk in 2027, a level of pricing that would have been dismissed earlier this year. The repricing has spread across asset classes. Equity markets faced pressure from higher discount rates, with growth stocks and cyclicals absorbing more of the impact.
During his testimony, he said that Trump never once asked him to commit to any particular interest rate decision and that he would not have agreed to do so. His narrow 54-to-45 confirmation reflected Democratic concerns about political proximity to the White House. Jerome Powell, whose term as chair ended in May 2026, remains on the Fed as a governor. His continued presence adds a layer of institutional continuity alongside whatever direction Warsh sets.
