Advisors expecting incoming Fed Chair Kevin Warsh to deliver rate cuts anytime soon are likely to be disappointed, according to Charles Schwab analysts, citing inflation levels that remain elevated.
In research released this week, the Schwab analysts note that inflation is above 3% annually, well above the Fed's inflation goal of 2%, making rate cuts harder for Warsh to implement. "We assume he’ll try to have a lower rate bias, but inflation above 2% will make that difficult," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research.
In its research note, Charles Schwab also pointed to the CME’s FedWatch tool, which currently shows little chance for a 2026 rate cut.
The latest tool data show that, with a current target rate range between 3.5% and 3.75%, the futures market is pricing in a 42% probability that this won’t change through the Fed’s December 2026 meeting. The probability of an increase to between 3.75% and 4% is 40.8%, and an increase of 4% to 4.25% has a probability of 13.8%. A cut to between 3.25% and 3.5% has a probability of just 1.4%.
April’s Consumer Price Index data, an important measure for inflation, came in higher than expected at 3.8% over the last 12 months, hitting its highest level since May 2023. Last week's Producer Price Index (PPI) data also came in much hotter than anticipated, registering the biggest jump in more than three years.
This is the inflationary environment that Kevin Warsh is dealing with as he takes over from Jerome Powell in the Federal Reserve hotseat. Warsh was President Donald Trump’s nominee to succeed Powell, who had repeatedly resisted calls from the president to lower interest rates. Warsh will be sworn in as Federal Reserve Chair on May 22, Reuters reports.
At its latest meeting last month, the central bank stuck to its path of keeping its policy rate steady at 3.5% to 3.75%, once again shrugging off pressure from Trump to cut interest rates. The Fed made its last rate cut in December 2025.
But the decision was a divisive one. Fed Governor Stephen Miran, who wanted to see a quarter percentage point reduction, was again a dissenting voice, while Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan supported maintaining the target range rate, though they did not support the inclusion of an easing bias in the statement.
"The dissents could represent an acknowledgment that the risks to higher inflation are greater than the statement implies," Charles Schwab’s Martin said, in the note. "With inflation above the Fed's 2% target for five years and counting, the committee can't be complacent."
Charles Schwab notes that, with eight members voting to pause Fed’s April meeting and three others opposing any sign of easing bias, it seems unlikely that the new Fed chair can immediately shift the paradigm, unless there is some sort a major collapse in employment.
"It's a reminder to Warsh that the most important letter in FOMC is the last one: C for committee," said Michael Townsend, managing director of legislative and regulatory affairs at Schwab.
During a fiery confirmation hearing in April, Warsh said that “monetary policy independence is essential,” adding that he does not believe that independence of monetary policy is threatened when elected officials state their views on rates.
Warsh, who was described a “sock puppet” for the president by Senator Elizabeth Warren, also said that “Fed independence is up to the Fed.”
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