沃什的第一道死局

Original author: WSJ Research Team

Trump chose Warsh to cut rates. But on May 15th, when Warsh officially took the chair left by Jerome Powell, he did not inherit a Fed ready to cut rates, but an FOMC where three governors would not even agree to "hint at a possible rate cut next time."

Those three dissenting votes—Hammack of Cleveland, Kashkari of Minneapolis, and Logan of Dallas—at the late-April meeting represented the most unusual dissent since October 1992. They weren't opposing a rate cut; they were opposing the "dovish tone." In their view, given the current inflationary environment, even a hint of a rate cut was inappropriate.

Warsh has inherited a central bank that is nearly tearing itself apart from within.

A Man Misunderstood by the Market

The market's mainstream characterization of Warsh comes from two rather unreliable sources.

First: Trump chose him specifically to get rate cuts. The logic is—choose him, and he will cut. Second: during his confirmation hearing, Warsh showed some agreement that the "Iranian oil shock is temporary," which was interpreted as a dovish signal.

Both inferences skip over the most authentic aspect of Warsh over the past fifteen years.

In November 2010, the Fed was debating QE2—whether to purchase another $600 billion in Treasury bonds. Warsh voted in favor that day. That same week, he published an article in the *Wall Street Journal* criticizing QE2. Voting for it while writing against it is extremely rare in Fed history, later described by researchers as a "silent dissent"—not genuine agreement, but a reluctance to disrupt consensus.

Back then, core PCE never exceeded 2.5%, and the unemployment rate was as high as 10%. There was no obvious inflationary pressure, yet between 2006 and 2011, Warsh gave 13 speeches specifically mentioning "upside risks to inflation." While other governors were discussing how to support employment, he was already worrying about an enemy that hadn't yet appeared.

That enemy is now at the door. April CPI was 3.8%, a three-year high. The energy shock from the Iran war pushed gasoline prices up 28.4% year-over-year and heating oil up 54.3%. In Warsh's first week in office, the 30-year Treasury yield touched 5.19%, just one step away from its 2007 peak.

Inflation Isn't Just an Iran Problem

The dovish argument has a reasonable core: the Iranian oil shock is an exogenous event. If the Hormuz negotiations make progress, oil prices could fall from $100+ to $75-80, energy inflation would recede quickly, CPI numbers would naturally improve, and Warsh would gain a window for rate cuts.

This logic is valid. But one line in the April inflation data complicates it.

Services inflation in April jumped to a month-over-month increase of +0.5%. In March, that figure was +0.2%.

There isn't much gasoline in services inflation. Dining, healthcare, transportation services, entertainment—these price increases have no direct link to Hormuz. The housing component rose +0.6% month-over-month over the same period, contributing double the impact. Core CPI, excluding food and energy, was up +0.4% month-over-month in April, the fastest single-month increase since late 2025.

In other words, inflation is spreading from the energy side to the services side. Once this process begins, even if oil prices fall back to $80 tomorrow, services price pressures will not disappear within two or three months.

This is precisely the same path as the Fed's 2022 misjudgment of "transitory" inflation. Back then, Powell said inflation was transitory; by the time he realized services stickiness had set in, the only recourse was the most aggressive rate hiking cycle in history. Warsh has historically been more alert to inflation than the market—this time, he is unlikely to repeat the same mistake.

The FOMC He Inherited

There is another factor the market hasn't fully priced in: the Fed Warsh inherits is internally divided to an unusual degree.

The April 28-29 meeting kept rates unchanged, appearing as an 8-4 vote. An 8-4 result is itself abnormal—the last time there were four dissenting votes was October 1992. But the direction of these four votes is more nuanced: three opposed hinting at rate cuts, while one supported a cut. The board simultaneously faced dissent in two directions.

In the FOMC statement, the committee upgraded its description of inflation from "somewhat elevated" to "elevated." The market underestimated this language upgrade. In the Fed's linguistic system, this is not a minor tweak; it is the board clearly telling the market that its tolerance for inflation is contracting.

As Chair, Warsh must build consensus within this board. He faces three voting members—Hammack, Kashkari, Logan—who believe even the hint of a "possible rate cut next time" should not appear, each more eager to tighten than he is. To cut rates, he must first convince these three.

No one can tell you right now how he will accomplish this.

The Hidden Issue of the Neutral Rate

There is another debate not yet in the mainstream narrative, but it may be the most important backdrop of the entire situation.

The Fed board's median estimate of the neutral rate (r-star) is around 3.0%. With the current federal funds rate at 3.5%-3.75%, from this perspective, monetary policy is in "restrictive" territory—applying brakes to the economy, allowing inflation to gradually decline.

However, the Cleveland Fed has a model that estimates the neutral rate at 3.7%. If this estimate is closer to reality, the current 3.5%-3.75% is not truly restrictive, at best "neutral-tight," and insufficient to persistently suppress inflation.

In his past research and speeches, Warsh has consistently leaned towards the view that r-star is higher than the board's estimate. If he pushes for a reassessment of neutral rate assumptions after taking office, it would mean not only no room for rate cuts but also undercutting the premise that "current policy is already tight enough."

The market has not priced in this scenario.

There is Also a Political Equation

It took Trump nearly a year to install someone willing to "drastically cut rates" into the Fed Chair's seat. This act alone has already altered the Fed's political ecosystem.

The confirmation vote was 54-45, the closest in Fed Chair history, more divisive than any previous one. During Powell's tenure, Trump subpoenaed his congressional testimony records, publicly mocked him as "too late," used Fed headquarters renovations as a political tool, and made the crisis of Fed independence one of the most watched themes of 2025.

Warsh's current predicament: He was chosen to cut rates, but the conditions for cutting don't exist. If he insists on not cutting, Trump's next reaction is unpredictable. If he cuts under political pressure, inflation will tell the market the Federal Reserve is no longer independent.

This is not a problem with a standard answer.

How Assets Are Moving

Look at the bond market first.

Long-end Treasuries have been the most honest scorekeeper of this macro narrative. The 30-year yield rose from 4.4% at the start of the year to 5.19%, and the 10-year reached 4.67%. Barclays' Ajay Rajadhyaksha clearly said: 5.5% is not the ceiling; they are warning this level will be breached. Citi's macro rates strategist McCormick said 5.5% has become traders' new "round number target."

The mechanism pushing long-end yields higher is not complicated: if the June 16th FOMC statement includes any language approaching "not ruling out further tightening," the 30-year Treasury could reprice to the 5.3%-5.4% range within 30 minutes on that day. At that point, 5.5% would not be a prediction; it would be the next stop.

Condition for failure: If Iran talks achieve a substantive breakthrough before the June FOMC, Hormuz resumes navigation, oil falls from $102 to below $80—then May and June CPI data would show significant improvement, long-end yields could retreat, and this judgment would need a full revision.

Tech stocks are second in line. The Nasdaq's Forward PE has compressed from its peak of 33x last year to the 27x range, but the historical average is near 20-22x. As long as the 10-year Treasury yield stays above 4.5%, it caps the PE multiple for tech stocks. The first phase of compression was "the disappearance of rate cut expectations"; the second phase is "the rekindling of rate hike expectations." There is a threshold between these two phases, and we have just crossed the first one.

Specifically: On the night after the press conference ends, capital will first watch Warsh's wording for any hint of a rate cut timeline. If there is none—currently the base case—the Nasdaq's correction will hit large-cap tech stocks within 48 hours. Nvidia, Microsoft, and Apple are the first affected, with secondary tech and growth stocks following behind, but with greater elasticity and more unpredictable direction.

Gold reads most ambiguously in this framework. Theoretically, rising real rates are negative for gold, but real rates are nominal rates minus inflation expectations. If the market starts worrying about Fed independence, inflation expectations themselves would revise upward, potentially offsetting the downward pressure from rising rates on gold. Coupled with continued expansion of the US fiscal deficit and ongoing de-dollarization gold purchases by foreign central banks, gold could see a situation where "rates rise, but prices don't fall." This is not the main judgment, but an edge case to observe.

The dollar is relatively straightforward: rekindled rate hike expectations → dollar strengthens. But if the market determines that the Fed independence issue has become structural, this logic would be discounted.

The Most Important Thing Before June 17th

Progress in Iran talks is the biggest variable of all.

Iranian Foreign Minister Araghchi said last week the agreement is "within inches"—while also stating "complete distrust of the Americans." On May 19th, Trump called off a planned military strike on Iran, citing "ongoing serious negotiations." But Hormuz remains effectively under control, and the handover of 40 kg of highly enriched uranium remains unresolved.

If talks break down before June 16th, oil prices could return to $110+, May CPI would likely exceed expectations again, and Warsh's first FOMC will face the worst possible scenario from the start. If a breakthrough occurs before then, oil falls, inflation data improves, and the entire logic of "Warsh backed into a corner" would soften.

The former scenario is negative for both bonds and tech stocks; the latter gives Warsh temporary breathing room—but even so, the endogenous stickiness of services inflation won't disappear, merely delaying the problem by a few months.

June 17th

The most important Fed date this year is June 17th at 2:30 PM—when Warsh takes the podium to release his first FOMC statement, then answers journalists' questions.

That day, every word will be dissected: whether he uses "patient" or "vigilant," whether he mentions rate hikes, how he describes the persistence of inflation, how he answers questions like "What is your dialogue with Trump like?"

The answers will tell the market how much it has mispriced Warsh, and how long it will take to correct that mistake.