Fed Chair Warsh signals possible rate hikes, markets adjust expectations

Federal Reserve Chair Kevin Warsh told markets that inflation continues to be the central concern, leading investors to move away from expectations of near-term rate cuts and to price in a higher likelihood of hikes before year-end. The Federal Open Market Committee left policy rates unchanged but emphasized that price pressures remain the top priority despite signs of slowing growth.

Former Dallas Fed President Robert Kaplan, now vice chairman at Goldman Sachs, warned that if inflation does not ease over the summer, policymakers may need to act as early as September and could consider additional moves later in the year. > "If inflation prints don’t cool between now and we get to September, I actually think the balance of risks suggests it would be wise to take some action, either in September or in the fall," Kaplan said in a Bloomberg Television interview.

Market participants noted the shift in tone. Scott Martin, a partner at Kingsview Wealth Management, said the odds of a rate hike have risen compared with a month ago and that the Fed appears focused on preserving its credibility on inflation. > "Right now, it’s less about economic growth and more about protecting the Fed’s credibility on inflation," he added.

Derek Reisfield, co-founder and former chairman of MarketWatch, estimated an 80 percent chance of a rate increase this fall, citing persistent inflation risks from food and energy prices and geopolitical uncertainty. He cautioned that higher rates could affect consumer borrowing costs and the government's debt financing.

Investors are now reassessing assumptions that a rate cut was imminent, with many acknowledging that the Fed is keeping all policy options open as it monitors upcoming inflation data.