The Federal Open Market Committee convened Tuesday for its first policy meeting under new Chair Kevin Warsh, who took office on May 22. The central bank is widely expected to hold the federal funds rate at 3.5% to 3.75%, the level set since the last cut in December. But with inflation running hot and the labor market tight, advisors are bracing for a hawkish tone from the new chair.
Warsh inherits an economy where the Producer Price Index has surged 6% year-over-year, and household surveys point to further price pressures. At his confirmation hearing earlier this year, Warsh stressed that "monetary policy independence is essential," but also acknowledged that elected officials are entitled to their views on rates. His first press conference Wednesday will be closely parsed for clues on how he balances those forces.
David Doyle, head of economics at Macquarie Group, said the press conference offers a rare window into Warsh's thinking. "This will mark the first press conference from incoming Chair Warsh, so it may also provide insights into his perspective on the policy outlook as well as any changes the committee is considering on its communications," Doyle said. He expects the FOMC to formally drop its prior bias toward cutting rates, a shift foreshadowed in the April meeting minutes.
One wild card is Warsh's well-known enthusiasm for artificial intelligence. During his confirmation hearing, he described AI as a "vital productivity tool" for U.S. business. Massive corporate spending on AI infrastructure is already fueling economic and earnings growth, and advisors are eyeing opportunities in the space. Warsh, described by CNBC as "the first tech bro" to lead the Fed, may use the press conference to highlight AI's potential to boost productivity and temper inflation.
The CME FedWatch tool shows a 99.6% probability of no rate change at this week's meeting. But the outlook for December is far more divided: a 43.4% chance of rates staying at 3.5%-3.75%, a 41.8% chance of a hike to 3.75%-4%, and a 13.2% probability of a move to 4%-4.25%. A hike to 4.25%-5% carries a 1.6% probability. Those odds have shifted markedly since March, when the dot plot still signaled cuts in 2026 and 2027.
Katie Klingensmith, chief investment strategist at Edelman Financial Engines, expects inflation to remain a top FOMC priority. "Given recent PPI and household surveys, inflation will likely continue to rise," she said. "A strong job market gives the Fed ample room to hike rates, but the pressure on the Fed to find the right balance is going to be intense." She added that market conditions will likely prompt a rate increase at some point over the next year.
Advisors should also watch for changes in the FOMC's assessment of the neutral rate, which influences long-term portfolio strategy. If the dot plot shifts to signal no cuts or even hikes ahead, fixed-income allocations may need adjustment. For more on how AI is reshaping advisor tools, see our coverage of Zocks' new agentic AI tool.
Warsh's wealth and Silicon Valley ties have drawn scrutiny, but his focus remains on price stability. "Fed independence is up to the Fed," he said during his confirmation hearing, signaling he will not bow to political pressure. As the FOMC navigates a tricky inflation landscape, advisors will be watching for any hint that the new chair is willing to raise rates sooner than markets expect. For context on how rate expectations have evolved, see our earlier report on Warsh taking the helm as PPI surged.
