Warsh's Hawkish Dilemma: Will He Fall into the Trap?

Markets are pricing in a hawkish Federal Reserve under new Chair Kevin Warsh, but many experts believe this is a misreading of the situation. As of Friday, there's a 40% probability of a 25 basis point hike at the upcoming meeting, which seems excessive given the recent core CPI inflation data.

Robin J Brooks, a writer and financial expert, argues that Warsh will not make the mistake of hiking interest rates when inflation is benign. In fact, Brooks predicts that the Fed won't hike at all in 2026 or 2027 because inflation is well-behaved.

The chart above shows market pricing for upcoming meetings, with a black line representing the current policy rate and an orange line indicating what markets expect this week. The gray line represents cumulative hikes through September, while the blue line shows expected hikes through the end of the year.