Kevin Warsh is taking the helm at the Fed at the worst possible time. The FOMC has just ruled out any immediate rate cuts, the war in Iran is driving inflation sky-high, and markets that were betting on easing are now facing a harsh reality. Quite the baptism by fire. 🔥
🔍 What’s happening?
Kevin Warsh has officially succeeded Jerome Powell as chair of the U.S. Federal Reserve. But the timing is disastrous for him. The FOMC, the Fed’s monetary policy committee, has just adopted a decidedly hawkish stance: no rate cuts in sight, despite market hopes.
The reason? The war in Iran. The conflict is driving up energy prices, weighing on supply chains, and reigniting inflationary pressures that the Fed believed were under control. As a result, FOMC members believe it would be premature to ease monetary policy until geopolitical risks subside.
Forex markets are reacting as expected. The dollar remains supported by this hawkish status quo; EUR/USD is hovering around 1.1630 at the time of writing, and USD/JPY is holding above 158.99 despite verbal interventions from Tokyo.
💡 Why does this matter?
For traders, this change of guard at the Fed in such a tense climate is a game-changer. Warsh inherits an FOMC that refuses to ease up, inflation that is rebounding due to oil prices, and a market that had been hoping for rapid rate cuts. This gap between expectations and reality is a recipe for volatility.
The dollar, supported by this prolonged restrictive policy, should remain dominant against the currencies of more accommodative central banks. The euro, the pound, and especially the yen are likely to continue suffering as long as the Fed stands its ground. And if the war in Iran intensifies, expect the FOMC’s hawkish tone to harden even further.
📊 Our take
Let’s be honest: Warsh is taking the helm in a perfect storm. And that’s not good news for those hoping for a quick dovish pivot.
The combination of war in Iran + a hawkish FOMC + resurgent inflation means one thing: U.S. rates will stay high longer than expected. The markets had bet on rate cuts as early as June or July. That illusion has just gone up in smoke. In our view, the dollar still has a bright future ahead as long as the Fed maintains this stance. The EUR/USD will struggle to break above 1.18–1.20 this year, and the USD/JPY could even test new highs if the BoJ remains passive. In Europe, the ECB is starting to talk about rate cuts, but with the Fed holding firm, the interest rate gap will widen and weigh on the euro.
It’s hard to see Warsh taking the political risk of cutting rates too early with an active conflict in the Middle East. For the French trader: favor long dollar positions against the euro or yen, and keep an eye on US inflation figures in the coming months. If the US CPI slips again, it’s a done deal for 2026.
✅ Key Takeaway
- Kevin Warsh takes the helm of the Fed amid the Iran conflict and a hawkish FOMC
- The FOMC refuses any rate cuts as long as inflation remains under pressure
- The dollar remains supported, with EUR/USD stuck around 1.16
- Hopes for a rapid US rate cut are fading for 2026
- Favor long dollar positions against the euro and yen
What do you think? Do you believe Warsh will stick to the FOMC’s hard line or yield to market pressure if a recession looms?
🔎 See also
For more insights, check out all our Forex analysis on ActuTrading Forex 📈
Source: U.S. Federal Reserve, FOMC, ForexLive
