沃許的第一道死局

Original Author: Wall Street Insights Research Team

Trump chose Warsh to lower interest rates. But on May 15th, when Warsh formally took over the chair left by Jerome Powell, he inherited not a Fed ready to cut rates, but an FOMC where three governors could 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—cast the most unusual dissent since October 1992 at the late April meeting. They weren't opposing a rate cut; they were opposing a "tone that was too dovish." In their view, given the current inflation environment, even a hint of a rate cut should not be given.

What Warsh inherited was a central bank teetering on the brink of internal rupture.

A Man Misread by the Market

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

First: Trump chose him precisely because he wanted rate cuts. The logic goes—chose him, and he will cut rates. Second: During his confirmation hearing, Warsh showed some agreement with the idea that the "Iranian oil shock is temporary," which was interpreted as a dovish signal.

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

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

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

Now that enemy is at the door. April CPI at 3.8% is a three-year high. The energy shock from the Iran war pushed gasoline prices up 28.4% year-over-year, and fuel oil up 54.3%. In Warsh's first week, the 30-year Treasury yield just touched 5.19%, just a step away from the 2007 highs.

Inflation Isn't Just Iran's Problem

The dovish argument has a reasonable core: The Iranian oil shock is an exogenous event. Once there's progress in Hormuz negotiations, oil prices fall from $100+ back to $75-80, energy inflation recedes quickly, CPI figures improve naturally, and Warsh gets his window to cut rates.

This logic holds. But there's a number in the April inflation data that makes it less clean.

Services inflation jumped to +0.5% month-over-month in April. In March, that number was +0.2%.

Services inflation doesn't contain much gasoline. The price increases in dining, healthcare, transportation services, entertainment—these have no direct connection to Hormuz. The housing component rose +0.6% month-over-month during the same period, doubling its contribution. The core CPI, excluding food and energy, rose +0.4% month-over-month in April, the fastest single-month pace since late 2025.

In other words, inflation is spreading from the energy side to the services side. Once this process starts, even if oil prices fall back to $80 tomorrow, the pressure on services prices won't disappear in two or three months.

This is precisely the old path of the Fed's 2022 misjudgment of "transitory" inflation. Back then, Powell said inflation was transitory. By the time he realized services stickiness had formed, he could only use the most aggressive rate hike cycle to try and catch up. Warsh has historically been more alert to inflation than the market. This time, he's unlikely to make the same mistake again.

The FOMC He Inherited

There's another thing the market hasn't fully priced in: The Fed Warsh is taking over is internally divided to an unusual degree.

The April 28-29 meeting held rates steady, with a vote that was officially 8-4. 8-4 itself is abnormal—the last time there were four dissenting votes was October 1992. But more nuanced was the direction of these four votes: three opposed hinting at a rate cut, one favored a rate cut. The board had dissents in two different directions simultaneously.

In the FOMC statement, the committee changed its description of inflation from "somewhat elevated" to "elevated." This language upgrade was underestimated by the market. In the Fed's lexicon, this is not a minor tweak; it's the board explicitly telling the market: our tolerance for inflation is shrinking.

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

Right now, no one can tell you how he will accomplish this.

The Hidden Problem of the Neutral Rate

There's another debate that hasn't entered the mainstream narrative, but it might be the most important background in the entire picture.

The Fed committee's median estimate puts the neutral rate (r-star) at around 3.0%. The current federal funds rate is 3.5%-3.75%, so from this perspective, monetary policy is in a "restrictive" range—applying brakes to the economy, allowing inflation to gradually come down.

But 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, it's "neutral-tight," 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 committee's estimate. If, after taking office, he pushes the Fed to reassess the neutral rate assumption, it would mean not only is there no room for rate cuts, but the very premise that "current policy is tight enough" would be called into question.

The market hasn't priced in this scenario.

And a Political Equation

It took Trump nearly a year to install a person willing to "cut rates significantly" into the Fed Chair's seat. This, in itself, has changed the Fed's political landscape.

The confirmation vote was 54-45, the closest ever for a Fed Chair, more divisive than any previous one. During Powell's tenure, he was subpoenaed by Trump's prosecutors for congressional testimony records and publicly mocked as "too late." The renovation of the Fed's headquarters was used as a political tool, and the crisis of Fed independence became one of the most watched themes of 2025.

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

This problem doesn't have a standard answer.

How Assets Will Move

Look at the bond market first.

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

The mechanism pushing long yields higher is not complicated: On June 16th FOMC, if Warsh's statement contains any wording close to "not ruling out further tightening," the 30-year Treasury will be re-priced into the 5.3%-5.4% range within 30 minutes of the release. At that point, 5.5% would not be a prediction, it would be the next stop.

Conditions for this to be invalidated: A substantial breakthrough in Iran talks before the June FOMC, restoration of navigation through Hormuz, oil prices falling from $102 back below $80. If these happen, the May and June CPI data would show marked improvement, long-end rates would have a chance to fall, and this judgment would need a comprehensive revision.

Tech stocks are the second priority. The Nasdaq's Forward PE has compressed from a peak of 33x last year to the 27x range, but the historical average is around 20-22x. As long as the 10-year Treasury stays above 4.5%, it acts as a ceiling for tech stock PE multiples. The first phase of compression was the "disappearance of rate cut expectations." The second phase is the "reignition 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 concludes, capital will first scan Warsh's wording for any hint of a rate cut timeline. If there is none—which is the current base case—a Nasdaq correction will hit large-cap tech stocks within 48 hours. Nvidia, Microsoft, and Apple will be the first to be affected, followed by secondary tech and growth stocks, which have more elasticity but are harder to predict directionally.

Gold reads most ambiguously within this framework. In theory, 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 will be revised upwards, potentially offsetting the pressure of rising rates on gold. Coupled with the ongoing expansion of the US fiscal deficit and continued gold purchases by foreign central banks de-dollarizing, gold might see a situation where "rates rise but prices don't fall." This is not the base case, but a marginal scenario to observe.

The dollar is relatively straightforward: Reignition of rate hike expectations leads to a stronger dollar. However, if the market determines that the Fed independence issue has become structural, this logic gets discounted.

The Most Important Thing Before June 17th

Progress in Iran talks is the biggest variable of them all.

Iranian Foreign Minister Araghchi said last week the deal is "inches away," while simultaneously stating he "completely distrusts the Americans." Trump called off a scheduled military strike on Iran on May 19th, citing "ongoing serious negotiations." But Hormuz remains effectively under control, and the transfer of 40kg of highly enriched uranium remains unresolved.

If talks collapse before June 16th, oil prices return to $110+, the May CPI will 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 prices fall, inflation data improves, and the entire logic of "Warsh cornered" softens.

The former is negative for both bonds and tech stocks; the latter gives Warsh a temporary breathing space—but even then, the built-in stickiness of services inflation won't disappear, at best delaying the problem for a few months.

June 17th

The most important Fed date this year is 2:30 PM on June 17th—when Warsh steps up to deliver his first FOMC statement and then answers questions from reporters.

On that day, every single word will be analyzed repeatedly: Does he use "patient" or "vigilant"? Does he mention rate hikes? How does he describe the persistence of inflation? How does he answer questions like, "What were your conversations 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.