President Donald Trump Just Threw Fed Chair Kevin Warsh Under the Bus, and Things Could Get Ugly for Wall Street

The Fed raised its policy rate by 25 basis points on Sept. 16, with inflation at 4.2% in May, above its 2% target; New York Fed economists estimate tariffs added 2.9 percentage points to goods-price inflation by February 2026. The article cites a 64% CME FedWatch probability of at least 75 basis points of additional rate hikes by September 2027, warning that higher borrowing costs could slow AI infrastructure investment and pressure a stock market it describes as priced for perfection. It also says tariffs and the Iran war’s disruption of oil flows through the Strait of Hormuz are contributing to inflation, while Trump’s criticism could put pressure on Fed credibility.

Analysis

The key transmission is not simply “higher rates hurt tech.” A sustained inflation shock could lift real yields and financing spreads together, pressuring leveraged data-center developers and rate-sensitive power/grid projects first; cash-rich AI platforms may instead gain share as marginal competitors defer build-outs. Power availability, equipment lead times and interconnection constraints may matter more than the policy rate over the next few quarters, so a capex slowdown is a scenario—not an automatic consequence of a hike.

Near term, the market risk is repricing of the expected policy path and term premium, with long-duration growth multiples vulnerable. Over 1–3 months, watch whether energy costs and tariff pass-through broaden into wages, services and inflation expectations. Tariffs can raise the price level without creating persistent inflation if second-round effects fail to emerge; normalization of energy flows would also weaken the tightening case. Over 6–18 months, persistent financing pressure could concentrate AI infrastructure economics among firms with stronger balance sheets.

Contrarian point: the cited probability of substantial 2027 tightening is a market-implied distribution, not a commitment by the Fed, and may already capture much of the headline risk. CME Group could see more hedging and rates-market activity from volatility, but that does not establish a durable earnings benefit or a directional equity thesis. The thesis weakens if energy prices normalize and core inflation/wage measures cool without a material upward repricing in front-end rates.

Key Decisions for Investors

• Avoid a broad, unhedged AI-equity short on this article alone. If inflation data and front-end rate pricing reaccelerate together, consider a defined-risk 3–6 month put spread on Nasdaq-100 exposure; cap premium at an amount acceptable to lose, and exit the hedge if energy costs ease and inflation expectations retreat.
• Watch for a relative-value opportunity: favor cash-rich AI platform companies over leveraged data-center owners and developers if credit spreads widen or financing costs rise while hyperscaler capex guidance remains intact. Do not initiate until balance-sheet exposure and project funding sensitivity are verified.
• For a rates expression, consider a small payer position in short-dated SOFR options only after market pricing moves higher on persistent core inflation—not on a single energy-driven print. The trade is falsified by a sustained fall in energy prices, cooling wage/services inflation, or a Fed pause that pulls expected policy rates lower.
• Keep CME Group on a volatility watchlist, not as a directional inflation trade: monitor rates-derivatives volumes and fee/volume disclosures to test whether higher uncertainty translates into incremental activity.