Summary

• Federal Reserve Chair Kevin Warsh faces persistent, accelerating inflation, with May 2026 PCEPI annualizing at 5.5%.
• Core inflation and broad-based price pressures signal the problem extends beyond energy, challenging the Fed's credibility.
• FOMC members project modest rate hikes, but market participants expect more aggressive tightening to address inflation risks.
• The Fed's tough rhetoric must be matched by decisive action; Warsh's credibility hinges on delivering price stability.

By William J. Luther

Traders expect the Fed’s new chair to respond to accelerating inflation with higher rates. Credibility requires policy to match the tough talk.

Federal Reserve Chair Kevin Warsh has inherited a major inflation problem. Rather