Kevin Warsh makes Fed meeting debut as chair. This is what advisors should expect from him

The latest meeting of the Federal Open Market Committee kicked off Tuesday – and advisors will be closely watching for any hints as to new Fed Chair Kevin Warsh’s monetary philosophy, and in particular, his policy toward interest rates.

Interest rates play a big part in how families and investors make their financial decisions. This, in turn, can prompt shifts in advisors’ strategies for their clients. This could be, for example, making changes to fixed income allocations or talking to clients about rate hike risk.

Warsh, who took office as Fed Chair on May 22, has stepped into the central bank hotseat at a tricky time. The new Fed chief has inherited an inflationary environment that is hardly conducive to rate cuts and will also be keenly aware that his predecessor Jerome Powell came under sustained pressure from President Donald Trump to cut rates.

At the last meeting in April, the Federal Reserve stuck to its path of keeping its policy rate steady at 3.5% to 3.75%. The Fed made its last rate cut in December.

David Doyle, head of economics at Macquarie Group, says that Wednesday’s press conference may give advisors some clues as to Warsh’s long-term strategy. “This will mark the first press conference from incoming Chair Warsh, so it may also provide insights into his perspective on the policy outlook as well as any changes the committee is considering on its communications,” he said, in a statement. “While Warsh provided insights into some key views during his confirmation hearing, this will be the first time he does so at a press conference as Chair.”

“Media questions may push him on topics, including: inflation, communication strategy, balance sheet, AI and productivity, and division on the committee,” he added.

Warsh could well spotlight AI during the press conference. The new Fed chair is a major proponent of AI – during his confirmation hearing earlier this year he touted the hugely disruptive technology as a vital productivity tool for U.S. business. This is important because massive spending on AI infrastructure is fueling economic and earnings growth, and as a result, advisors and their clients are eyeing opportunity within the space.

Warsh, who is the wealthiest Fed chair ever, has also been described as “the first tech bro” to the lead the central bank, according to CNBC, which cites his close links to Silicon Valley. It will be interesting to see whether this background influences his policy decisions.  

As for Warsh’s ability to withstand political pressure, he said that “monetary policy independence is essential,” during his fiery confirmation hearing. Warsh added that he does not believe that independence of monetary policy is threatened when elected officials state their views on rates. “Fed independence is up to the Fed,” he said.

Set against this backdrop, Macquarie Group’s Doyle expects the FOMC to leave the federal funds rate unchanged this week in the 3.5% to 3.75% range. “With the rate decision unlikely to surprise, the market focus will shift to the dot plot [the FOMC participants' rate projections], statement language changes, and communication from incoming Chair Warsh,” he said. Doyle thinks that it is highly likely that the committee will formally drop its prior bias toward cutting rates, a development that was foreshadowed in its last meeting.

If anything, the minutes from the Federal Open Market Committee’s April meeting, released last month, raised the possibility of rate hikes amid inflationary pressures.

Macquarie Group’s Doyle notes that, in March, the dot plot signaled further rate cuts in 2026 and 2027. “This may shift to no rate changes or potentially even signaling hikes ahead,” he said. “A related question will be if assessments of the neutral rate have changed.”

Certainly, the CME’s FedWatch tool shows that a rate hike is much more likely than a cut as 2026 progresses. The latest tool data show a 99.6% probability of rates staying unchanged at this week’s meeting, and just a 0.4% probability of a rate hike to 3.75% to 4%. However, for the last Fed meeting of the year in December the tool shows a 43.4% probability of a rate between 3.5% and 3.75%, and a 41.8% probability of a rate hike of 3.75% to 4%. A rate increase to between 4% and 4.25% has a 13.2% probability, according to the tool, while a 4.25% to 5% rate hike has a probability of 1.6%.

Then there is the issue of inflation. Katie Klingensmith, chief investment strategist at Edelman Financial Engines, says that advisors are likely to see inflation tick upwards. “Given recent PPI [Producer Price Index data, a key indicator of inflation] and household surveys, inflation will likely continue to rise,” she said. “A strong job market gives the Fed ample room to hike rates, but the pressure on the Fed to find the right balance is going to be intense.”

“It’s our expectation that inflation continues to be a top priority on the FOMC’s agenda – and that market conditions will prompt a rate increase at some point over the next year,” she added.

This all points to a scenario where the Fed continues on its current path, potentially with rate hikes looming on the horizon. So, unless Warsh has some surprises up his sleeve, the chances are that advisors won’t be seeing any rate cuts anytime soon.