During his first FOMC meeting as Fed Chair in June, Warsh said that "financial markets are probably the most important source of information to guide central banks," and with the market now pricing in a 93.5% probability of a rate hike, the Fed will have to deliver. Notably, Warsh explicitly rejected the kind of "forward guidance" that former Chair Janet Yellen used so effectively, consistently leaning dovish in a way that helped keep the asset rally moving.

This isn't the first time Trump has tried to reshape the Fed's tone. During his first term, Trump replaced the dovish, but Democratic-leaning Yellen with a relatively hawkish Powell, a choice that ultimately worked against his monetary policy goals. Installing Warsh now looks like a further bet on hawkishness. But the underlying inflation backdrop is arguably self-inflicted: had the U.S. not struck Iran at the end of February 2026, oil prices would likely have stayed in the $55–65 range, limiting both the direct hit to inflation and the political cover it has since provided for broader price increases.

As we explain below, this has become a very high price to pay, not only for consumers, but for Republicans as well. We also lay out what we think this means for risk assets.

SP500 (LHS) vs Crude Oil (RHS)