Inflation hit a 3-year high last month. Kevin Warsh has been Fed chairman for less than a month. His first proper appointments are in six days.

The numbers fell Wednesday morning and they were miserable. US inflation from May accelerated for the third consecutive month to a 4.2% print, its highest since April 2023. The monthly gain was 0.5%. That's the level economists expected. The report offered no surprise and certainly, not a consolation. It was a confirmation of the trend that has been in place since the start on Iranian war late February.

The culprit is not complicated. Energy costs jumped 23.5% over the past twelve months. That brings fuel only hyperinflation to a staggering 40.5% YoY. Fuel oil is up 58.9%. Energy alone accounted for over 60% of the month-on-month acceleration in consumer prices. This is not a generalized inflation issue. Farmers are grappling with a unprecedented energy shock, all at once draining household budgets, transport charges and supply chains.

The picture is not so grim when you strip out food and energy. The Core CPI in October was on a yearly basis of 2.9% and an overall of 0.26%, lower than forecasted by economists or expected at 0.3%. Shelter continues to burn at 3.4%. Motor vehicle insurance on the other hand, was down 1.7 per cent, new vehicles fell 0.3 per cent and household furnishings slid 0.6 per cent.

What this means for rates

Remember six months ago when markets were arguing over how fast the cut would come from the Fed? That conversation is over.

Futures markets indicate no more than 10% odds for a cut anytime in 2026. First signs of rate hike bets capabilities since 2023, quietly coming back into pricing If inflation remains sticky, JP Morgan now expects the Fed to stay on hold all year then raise by 25 bps in Q3 of 2027.

The best read available was tempered at least somewhat by some back of the envelope work done by Oxford Economics lead economist Nancy Vanden Houten who offered one glum adjusting argument: May could be peak headline CPI since gas prices collapsed literally early Friday morning before June even began. She even admitted inflation is a long ways from getting back to normal and that core remains sticky.

That's the problem for Kevin Warsh, and it is what he has inherited. He succeeded Jerome Powell earlier this month and his first FOMC as chair is June 16-17. The rate decision is June 17. What markets will be eavesdropping for - something harder to pull out of a policy statement than a rate change: whether Warsh sounds more worried about inflation or growth, and overall if he gives any sense if and when the door to cuts might open.

The Warsh factor

Warsh has anti-hawkish instincts on inflation and arguably is the Fed's biggest skeptic on its communication tools. His views on the dot plot, meaning the quarterly rate projections published by the committee, and on how fast to run down the balance sheet are significantly different than Powell's.

However, Morgan Stanley chief economist Seth Carpenter recently pointed out something that most professional Fed watchers know: Decisions about rates are made by committee not the chair. With a full vote, Powell will stay at the Board of Governors until January 2028. At the April meeting, three other members were already inclined toward hikes. Warsh is not inheriting a blank slate from the committee.

The split screen nobody wants

This is the tension that will shape the next six months. Driven by war, headline inflation sits at 4.2%. Core inflation is stable around 2.9% The Fed cannot cut cum headline that high without looking reckless. It cannot hike when the underlying economy is unable to create inflationary pressure independently absent having to punish businesses and consumers with a geopolitical shock they did not create.

Trump warned Wednesday that Iran would "be held fully accountable" for not making a deal. Alone that was enough to push markets back into caution mode again. Brent crude briefly climbed above $97 in intra-day deals before falling back. Click here for a pencil and paper on how to remember all these numbers Bitcoin itself up by only 62,069 which is kind of the point too.

The only real variable that matters for the inflation outlook is what happens next with the Strait of Hormuz. If a deal gets done and energy prices retreat, May may indeed prove to be the peak Vanden Houten is anticipating. In that scenario, the Fed will have an easy choice unless the conflict escalates significantly and oil meanders back toward $100 (and ultimately above).

In six days, for the first time, Warsh will be taking a seat at the head of the table. Market participants want him to answer the question of whether or not that means when things finally clear up, the Fed has wiggle room. It became a little harsher question to answer with the May CPI print.

Gold and Silver take a hit.

• i hooked my whoop to my work calendar to find which coworker gives me the most stress

• DEX Raydium exploited for $1.3 MILLION.

• President Trump says "I love the inflation" and explains why after US CPI inflation rises to 4.2%.

• Coinbase got approved to offer true global crypto perps in the US

• Someone on Reddit built a game where you ride a dirt bike on top of any company's stock chart.

Join the Conversation!

We'd love to hear your thoughts and comments. Join our community and stay updated with the latest trends and discussions in crypto.

Twitter | Instagram | Telegram Channel | Linkedin | Facebook