Rate-cut hopes fade as traders see Warsh Fed holding firm
Hot April inflation data has pushed investors away from rate-cut bets and toward a hold-or-hike outlook for the Federal Reserve.
By Hana Yoshida · Markets Reporter
3 min read
Investors are backing away from expectations that Federal Reserve Chairman Kevin Warsh will cut interest rates soon, Fortune reported. The shift matters because President Trump’s reported preference for lower rates is running into inflation data and bond-market signals pointing the other way.
Warsh, who was confirmed by the Senate as the new head of the U.S. central bank, now faces a market that sees little room for an immediate easing cycle, according to Fortune. The publication reported that analysts at several investment platforms now view the Fed’s next move as either holding rates steady or raising them.
Inflation data changes the rate outlook
Fortune reported that investors had expected a series of rate cuts over the next year until recent weeks, including the period before the war with Iran. That outlook changed after April inflation figures came in above expectations.
According to Fortune, the Consumer Price Index for April rose 3.8%, while the Producer Price Index, which measures wholesale price pressures, rose 6%. Those readings led traders to take expected rate cuts off the table, the publication reported.
The CME FedWatch tool, which tracks federal funds futures, showed traders assigning a high probability to the Fed keeping rates unchanged until September, according to Fortune. After that point, the publication said, market bets that differ from the hold view lean more toward a rate increase than a cut.
Prediction market Kalshi showed 31% of bettors expecting a Fed rate hike by the end of the year, Fortune reported. The figure underscores how far rate expectations have moved from the earlier assumption that Warsh would begin his tenure with a cut.
Bond market adds pressure
Long-term U.S. debt markets also signaled rising concern over future rates, according to Fortune. The Financial Times reported that the risk premium on 30-year U.S. bonds rose above 5% on Wednesday for the first time since 2007.
Fortune interpreted that move as a sign investors expect interest rates to rise in the future. The development adds to pressure on Warsh as he tries to steer policy while inflation remains above expectations.
Broader markets were still firm in the same report. Fortune said S&P 500 futures were up 0.21% in the morning after the index gained 0.58% the prior day to close at a record 7,444.25.
Other markets were mixed, according to Fortune. The Stoxx 600 in Europe was up 0.21% in early trading, the U.K.’s FTSE 100 was up 0.14%, South Korea’s KOSPI gained 1.75%, Japan’s Nikkei 225 fell 0.98%, India’s Nifty 50 rose 1.36%, and China’s CSI 300 dropped 1.68%.
Fortune reported that Brent crude fell to $106 a barrel and bitcoin slipped to $79,700. Those moves came as investors continued to price a Fed that may stay tighter for longer than they expected only weeks earlier.
The political question now is how much patience Trump will show if Warsh does not deliver a rate cut, Fortune reported. For now, the market’s message is that inflation has limited the new Fed chair’s room to satisfy the White House’s preference for easier monetary policy.
This story draws on original reporting from Fortune.