The next time the Fed moves it’ll be to hike, according to one economist—whether or not Trump gets his new Fed chair

The fed funds rate currently sits at 3.50%-3.75%; CME FedWatch shows >87% pricing for a hold at the April FOMC and a 12.4% chance of a 25bp hike to 3.75%-4.00%. Escalation in the Middle East has pushed oil-linked retail gasoline above $4/gal, increasing upside inflation risk and lowering the likelihood of Fed rate cuts this year. Macquarie forecasts the next Fed move as a hike (likely in 1H27) and EY-Parthenon expects only one 25bp cut in Dec 2026, while the Trump nomination of Kevin Warsh introduces political uncertainty around future Fed dovishness.

Analysis

The geopolitical risk premium is now acting like a slow-burn tax on global supply chains, not a one-off energy spike. If risk premia keep crude trading persistently above its prior range for 3+ months, expect a 20–40bp uplift to core CPI through second-order channels — higher freight, refining margins, and labor re-pricing in affected sectors — which in turn keeps the short end priced for tighter policy for longer. That transmission implies a recalibration of real rates and term premia: front-end repricing will be driven by policy uncertainty while the belly and long end will reflect higher inflation expectations and safe-haven flows, producing bouts of curve steepening followed by Fed-driven flattening.

The Warsh nomination is a policy narrative lever, not an instantaneous guarantee of lower rates. Leadership changes alter the path via credibility and communication; markets that have front-run easing are at risk of being whipsawed if incoming guidance is measured or conditional. Practically, this makes short-dated options and front-end futures sensitive to political headlines — positioning risk is concentrated in small time windows (news-driven days/weeks) whereas the economic impact plays out over quarters.

Winners and losers are more nuanced than “energy up, growth down.” Energy midstream and high-margin US shale operators capture near-term cashflow optionality and should fund buybacks or upstream reinvestment quickly; logistics, airfreight, and labor-intensive manufacturing are secondary losers as margin pressure and wage repricing compress operating leverage. On a currency and credit front, EM sovereigns and corporates are vulnerable to higher US real yields plus USD strength, creating asymmetric downside for carry trades and local-currency debt over the next 3–12 months.

Key Decisions for Investors

• Tactical long on US upstream, moderate size: Buy Pioneer Natural Resources (PXD) 3–6 month call spread (buy 1x 6–9% OTM, sell 1x 15–20% OTM) — allocate 3% NAV to premium. Rationale: captures incremental margin if WTI rallies above prior range; payoff 2–4x premium if sustained >$85–90; max loss = premium paid if oil mean-reverts.
• Inflation hedge: Buy TIPS exposure via iShares TIPS ETF (TIP) or short-duration VTIP, size 4% NAV, horizon 6–12 months. Rationale: protects real purchasing power if oil-driven CPI outturns stay elevated; downside is mark-to-market if real yields spike — cap sizing to limit duration drag.
• Defensive equity & income: Overweight Energy Midstream (EPD) and select integrated majors (CVX) via 6–12 month buy-and-hold, size 4–6% NAV. Rationale: midstream cashflows are insulated and likely to raise distributions/ buybacks; reward is stable yield plus upside from higher throughput volumes; risk is regulatory/political disruption to projects.
• Risk-off / EM hedge: Go short Emerging Market sovereign debt ETF (EMB) or increase USD exposure via UUP, size 2–3% NAV. Rationale: higher-for-longer US rates + USD strength compresses EM carry and credit spreads; expect 6–10% downside in EMB in a material USD/real-rate move. Use tight stop at 3% adverse move to cap drawdown.
• Volatility/play on growth: Buy 6–12 week put spread on QQQ (moderately OTM) — size 2% NAV in premium. Rationale: growth multiples are vulnerable to a prolonged higher-rate regime; limited-premium put spread provides asymmetric payoff for a 5–10% drawdown in large-cap tech while capping max loss to premium.