Commerzbank economists Bernd Weidensteiner and Christoph Balz reviewed how a possible appointment of Kevin Warsh as US Federal Reserve Chair could affect monetary policy. They say Warsh has criticised recent Fed policy and expects AI to lower inflation.<\/p>\n
They state they do not expect AI to lower inflation and doubt Warsh could maintain the Fed\u2019s independence from Donald Trump. They add this could lead to interest rate cuts that are too fast over time.<\/p>\n
They note it is unclear whether the Fed would meet calls for rapid cuts if Warsh became chair soon. They also mention inflation has risen again after the war against Iran, which could delay a return to the 2% target.<\/p>\n
They say Warsh could struggle to secure support for a rate cut at his first June meeting. They add that if rates stayed unchanged, he could face pressure from the president.<\/p>\n
They maintain their forecast that the next Fed rate move will likely be towards the end of the year. They cite the time Warsh would need to establish his position within the Fed.<\/p>\n
The article was produced using an AI tool and reviewed by an editor.<\/p>\n
Last year, we considered the possibility that a new Federal Reserve chair could face political pressure to cut interest rates too quickly. The main concern was that a focus on potential AI-driven disinflation could lead to an overly aggressive policy in the medium term. This created significant uncertainty about the path of rates for 2026.<\/p>\n
Those predictions of a difficult start were accurate, especially after inflation picked back up following the conflict with Iran in 2025. Similar to the energy shocks that followed events in 2022, oil prices remained elevated through the end of last year, holding Core PCE stubbornly above 3%. We saw this reflected in the data as recently as the first quarter of 2026, which prevented any broad consensus for a rate cut.<\/p>\n
For derivative traders, this means that bets on rapid rate cuts in the first half of this year have been misplaced. The SOFR futures curve, which had been pricing in at least two cuts by June 2026, has flattened considerably over the past eight weeks. This suggests traders should unwind positions that rely on an imminent dovish pivot and instead prepare for a “higher for longer” scenario.<\/p>\n
The optimism from last year about AI significantly lowering inflation has not yet appeared in the numbers. Recent productivity data for Q4 2025 showed only a modest 0.8% gain, far below the levels needed to signal a major disinflationary trend. This implies that options traders may find value in strategies that profit from continued rate volatility, as the Fed remains caught between political demands and stubborn economic data.<\/p>\n
Given this environment, a key strategy in the coming weeks is to hedge against the risk that rates do not get cut at all this year. We believe buying puts on long-duration bond ETFs could be a prudent move to protect against any hawkish surprises. The market is still pricing a high probability of a cut by year-end, and any shift in that sentiment could be abrupt.<\/p>\n","protected":false},"excerpt":{"rendered":"
Commerzbank warns Warsh may face Trump pressure, doubt AI disinflation, and foresee premature Fed rate cuts.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-45608","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45608","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=45608"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45608\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=45608"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=45608"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=45608"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}