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Incoming Fed Chair Kevin Warsh faces a challenging start to his tenure as an Iran war–driven energy shock has pushed inflation well above the Fed’s 2% target, prompting even historically dovish FOMC members to reconsider their easing bias ahead of his first policy meeting in June.

What caught our eyes this week

Between a rock and a hard place

Kevin Warsh has his hands full for his first few months as Fed Chair. His tenure was supposed to kick off with a resumption of policy easing. Instead, he’s being forced to digest an energy shock from the Iran war. Headline Consumer Price Index is running at 3.8% year over year, nearly double the Fed’s 2% inflation target. Inflation expectations (both near-term and intermediate-term) are also rising. They’re not at extreme levels yet, but it’s an uncomfortable trend nonetheless for a Fed looking for signs the energy-driven supply shock could be spreading to the broader inflation basket. Fortunately, wage and shelter inflation—two crucial drivers of broader inflation—are still in a solidly disinflationary trend. Even still, the shifting balance of risks is getting the attention of other voting FOMC members, not least of which is Chris Waller, a historically dovish board member who admitted in a speech last week that he no longer feels it appropriate to maintain an easing bias in the FOMC’s policy statement. It goes without saying, but Warsh’s first meeting and press conference as chair in June will be must-see TV.

Graph showing consumer inflation expectations from May 2021 through February 2026

CHART OF THE WEEK: Cerity Partners, University of Michigan, FactSet, 5/25/2026

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