Tomorrow, June 17, the Federal Reserve holds its first meeting under new chair Kevin Warsh — and the timing couldn't be more complicated. US inflation hit 4.2% in May, well above the 2% target, yet markets are not pricing in a rate hike before December. The key variable hanging over everything: the US-Iran peace agreement and what it means for energy prices.
The Strait of Hormuz is expected to reopen within days, and oil markets are already reacting — Brent has fallen to around $80 a barrel, with WTI trading even lower. That's still roughly 40% above pre-war levels, and how quickly Gulf oil supply can resume — given damage to production infrastructure — remains an open question. Trump's political calendar, with midterm elections approaching, adds another layer of pressure for lower energy costs.
As for Warsh himself, he arrives with a well-established reputation as an inflation hawk. A sharp policy shift seems unlikely this early. The fed funds rate is expected to stay in the 3.50-3.75% range. Blerina Uruci of T. Rowe Price expects a brief policy statement with no guidance toward future easing, while Tiffany Wilding of Pimco anticipates Warsh will flag balance sheet reduction as a priority without committing to specific action yet.
The US economy, for its part, is holding up. Q1 growth came in at 1.6%, softer than expected, but business surveys point to a reacceleration, and AI-driven investment continues to support demand for chips with no visible slowdown.
BNY's John Velis expects the updated Summary of Economic Projections to drop the single rate cut that appeared in previous forecasts — a quiet but meaningful signal about where the Fed's head is now.
