Hot jobs report puts Fed cuts further out of reach as Chair Warsh faces policy tests A robust May jobs report has significantly reduced the likelihood of imminent interest rate cuts by the Federal Reserve. New Fed Chair Kevin Warsh is facing internal challenges from colleagues who disagree with his policy stances on inflation, economic growth, and monetary policy frameworks. These policy debates are occurring against a backdrop of high inflation and geopolitical uncertainty, further complicating the Fed’s decision-making process.

• The May jobs report showed unexpectedly strong gains, weakening the case for interest rate cuts.
• Market expectations have shifted, with traders pricing in a lower chance of a cut and higher odds of a hike by the end of 2026.
• Several Federal Reserve officials are publicly questioning Kevin Warsh’s core policy assumptions regarding inflation, artificial intelligence’s impact on productivity, and inflation measurement methods.
• Concerns about rising inflation and the risk of shifting inflation expectations are prominent among Fed officials.
• Disagreements exist on how to interpret inflation data, with some officials questioning the reliance on trimmed mean measures.
• Challenges also extend to Wall Street, with analysts drawing comparisons to the 1990s Fed under Alan Greenspan, noting key differences in real interest rates.
• The closure of the Strait of Hormuz and the ongoing Iran war add further uncertainty to the economic outlook and policy decisions.