Warsh Faces Challenges as Sticky Inflation Boosts Rate Hike Odds

US inflation remains sticky, pushing investors to raise bets on a potential Federal Reserve rate hike. This creates early challenges for incoming Fed Chair Kevin Warsh.

Investors sharply increased their bets that the US Federal Reserve could return to raising interest rates before the end of the year after stronger-than-expected inflation readings last week. The odds of tightening by January have jumped, with markets pricing in a 60% probability that the Fed's benchmark rate will be 25 basis points higher.

Despite inflation persistently above the central bank's 2% target, policymakers have continued to indicate that their next move would likely be a rate cut. However, sentiment within the central bank has begun to shift, with several policymakers arguing for a change in stance and three officials dissenting against April's policy statement because it retained an easing bias.