Kevin Warsh’s proposal for a trimmed inflation gauge points to a more hawkish Fed stance, and the market for Fed interest rates by the end of 2026 is pricing in increased volatility. Warsh’s trimmed average method, which shows higher sensitivity to inflation shocks, could shift expectations toward a rate hike. With core PCE around 3% and CPI climbing to 3.3%, his approach signals a potential departure from current Fed strategies. This could push odds higher for a rate increase, particularly at the December 31 resolution date.
The July 2026 Fed decision market is less affected so far, priced at
Warsh’s testimony before Congress on April 22 could increase hawkish expectations. The trimmed inflation gauge, potentially more responsive to energy and food price shocks, positions Warsh as a more hawkish alternative to Jerome Powell. At 82.5¢, a YES share in the July market pays $1 if no rate change occurs, a modest bet that reflects traders seeing little immediate disruption absent new evidence from Warsh’s policies.
Watch for Warsh’s congressional testimony and any follow-up statements by Fed officials like Jerome Powell or Michael Feroli. Their reactions could shape market views on future rate hikes.
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