The Fed's Easing Cycle Is Over, and Kevin Warsh's First FOMC Meeting Will Prove It

The Federal Reserve's easing cycle has effectively ended, and the numbers make that case without ambiguity. The effective federal funds rate stands at 3.63% as of May 1, 2026, within the Fed's target range of 3.50% to 3.75%, unchanged since April. What has changed is everything around it: the labor market, inflation, and the identity of the person running the institution.

A Jobs Report That Rewrote the Rate Outlook

The May jobs report, released Friday, June 5, 2026, was not a mild surprise. The economy added 172,000 nonfarm payrolls, nearly double consensus? estimates. The unemployment rate held steady at 4.3% for the third consecutive month, matching the latest FRED data for May 2026 and remaining below the FOMC's own 2026 projection of 4.4%. A labor market that refuses to crack is, for a central bank weighing rate cuts, a door that refuses to open.

The market's reaction was swift and unambiguous. Treasuries sold off sharply in the hours after the release, yields rising across the curve as traders repriced the probability of near-term easing. The dollar strengthened. Equities retreated, with the S&P 500 and Nasdaq both declining on June 5. These are not the moves of a market that believes the Fed is still on a cutting path.

Inflation Has Not Cooperated Either

April's headline Consumer Price Index registered 3.8% year-over-year, with core inflation at 2.8%, both well above the Fed's 2% target. The April CPI level in absolute terms reached 332.407, up from 330.293 in March and 327.46 in February — a trajectory that shows no sign of reversal. The ongoing Iran war is frequently cited as a persistent driver of elevated energy and commodity prices, adding an exogenous inflation floor that the Fed cannot easily address? with rate policy alone.

The combination of a hot labor market and above-target inflation leaves the Federal Reserve with no data-driven justification for loosening financial conditions. Both legs of the dual mandate — maximum employment and price stability — are currently pulling policy in the same direction: hold, or tighten. That convergence is unusual and consequential.

Goldman Sachs and J.P. Morgan Shift Their Timelines

On June 7, 2026, Goldman Sachs postponed its forecast for the Fed's next two rate cuts to June and December 2027, citing the strong employment data. The bank's chief U.S. economist, David Mericle, now anticipates two 25 basis point cuts in 2027. Goldman also raised the estimated probability of modest rate hikes in 2026 to 20% — a number that would have seemed extreme just weeks ago.

J.P. Morgan's position is similarly cautious: the bank forecasts the Fed will hold rates steady through 2026, with a potential 25 basis point hike in Q3 2027 if inflation does not cooperate. These are not fringe views. They represent a new institutional consensus? that has formed rapidly in the wake of the June 5 jobs print. The direction of travel among major Wall Street forecasters is uniform even if the precise terminal rate projections differ.

For rate-sensitive assets, even a prolonged hold at 3.63% is a materially different environment than the easing path markets were pricing at the start of 2026. Mortgage rates, corporate borrowing costs, and the discount rates applied to long-duration assets all remain elevated. The calendar may no longer show imminent cuts, but the damage from the repricing is already embedded in valuations. For deeper background on how the Fed frames these decisions, see our primer on what is FOMC and the history of Fed rate decisions.

Warsh Takes the Chair at a Pivotal Moment

Kevin Warsh, officially sworn in as Fed Chair on May 22, 2026, will preside over his first Federal Open Market Committee meeting on June 16 and 17, 2026. That meeting is widely expected to signal a formal departure from the easing bias that characterized Jerome Powell's final months. The transition itself carries signal: Warsh arrives with a reputation for hawkishness built over years of public commentary on monetary policy, and the data he inherits gives him little reason to soften that posture.

The June 16-17 statement and press conference will be parsed unusually closely. A new chair's first public communication sets a tone that markets internalize for months. If Warsh signals openness to hikes — even conditionally — the 20% probability Goldman Sachs currently assigns to 2026 rate increases could move materially higher. If he holds to a neutral pause framework, the Treasury market may find a temporary floor. Either way, the meeting represents the most significant Fed communication event of the year so far.

The Counter-Narrative Worth Considering

Not every analyst believes the Fed is marching toward hikes. Analyst Martin, writing on June 8, 2026, argued that an extended pause is a more probable scenario than aggressive rate increases. Confluence Investment Management, also on June 8, 2026, cautioned against assuming immediate hikes under the new chair, noting that institutional inertia and the Fed's own communication norms tend to favor gradualism over abrupt reversals.

Adding a note of restraint to the hawkish chorus, the Federal Reserve Bank of New York's May 2026 Survey of Consumer Expectations, released on June 8, 2026, showed a decrease in households' short-term inflation expectations. That divergence between professional forecasters and household expectations is the one genuine source of uncertainty in an otherwise one-sided outlook. If consumer inflation expectations remain anchored or continue to fall, the Fed may conclude that the credibility of its 2% target is intact even without further tightening — and that a hold is sufficient to do the work a hike would otherwise accomplish.

The difference between a pause and a hike cycle is not merely semantic. A prolonged hold preserves optionality. A hike signals that the Fed views current policy as insufficiently restrictive, which is a harder message to walk back. Warsh's language on June 17 will clarify which framing he prefers — and markets will move accordingly.

Frequently Asked Questions

What is the current federal funds rate?

As of May 1, 2026, the effective federal funds rate is 3.63%, within the Federal Reserve's target range of 3.50% to 3.75%, unchanged since April 2026.

When is Kevin Warsh's first FOMC meeting as Fed Chair?

Kevin Warsh, sworn in as Federal Reserve Chair on May 22, 2026, will chair his first FOMC meeting on June 16-17, 2026. The statement and press conference from that meeting are expected to set the tone for Fed policy through the remainder of 2026.

Why did Goldman Sachs push back its rate-cut forecast to 2027?

On June 7, 2026, Goldman Sachs cited the stronger-than-expected May jobs report — 172,000 nonfarm payrolls added, nearly double consensus? estimates — as the primary reason for delaying its rate-cut forecast to June and December 2027. The bank's chief U.S. economist David Mericle also raised the probability of 2026 rate hikes to 20%.

What is the current unemployment rate and how does it compare to the Fed's projection?

The unemployment rate held steady at 4.3% in May 2026, the third consecutive month at that level. This remains below the FOMC's own 2026 projection of 4.4%, meaning the labor market is running stronger than the Fed itself anticipated.

Is a rate hike in 2026 now the base case?

No. Goldman Sachs puts the probability of modest rate hikes in 2026 at 20%, while J.P. Morgan's base case is that rates hold steady through 2026. Analysts at Confluence Investment Management and analyst Martin both described an extended pause as more likely than a full hiking cycle. The balance of risk has shifted hawkish, but a hold remains the consensus? expectation.

What does April's CPI data show about the inflation outlook?

April's headline CPI registered 3.8% year-over-year and core CPI came in at 2.8%, both well above the Fed's 2% target. The absolute CPI index level rose from 327.46 in February to 330.293 in March and 332.407 in April, a consistent upward trajectory that gives the Fed no statistical basis for concluding that inflation is on a reliable path back to target.

Related reading

For more context, read Fed rate decisions.

For more context, read What is FOMC.