Prior to his confirmation, many investors expected new Federal Reserve Chair Kevin Warsh to be dovish, especially on interest rates.
The theory was Warsh would point to productivity gains driven by artificial intelligence to argue for lowering interest rates
But less than two months in, Warsh has thus far adopted a more hawkish stance, leading investors to fear that interest rate hikes could be coming if inflation data doesn’t improve. These six words from Warsh will define this era of Wall Street. Warsh is committed to reining in inflation The Fed’s inflation target has long been 2%.
However, it’s been over five years since inflation declined to this level, according to the Fed’s preferred gauge of inflation, the Personal Consumption Expenditures (PCE) price index. US PCE Price Index YoY data by YCharts While former Fed Chair Jerome Powell managed to significantly lower inflation after it peaked at extraordinarily high levels in 2022, the Fed never brought it down to 2% during his tenure. The central bank actually lowered interest rates on several occasions in 2025 due to concerns about the labor market and an economic downturn.