Kevin Warsh May Throw President Donald Trump Under the Bus in His First FOMC Meeting as Fed Chair

U.S. inflation rose to a three-year high of 4.2% in May, while the Fed is expected to hold rates steady at today’s meeting and likely shift from an easing bias to a neutral stance. The article argues Kevin Warsh may blame President Trump’s tariff and Iran-related policies for the inflation surge, increasing the odds of rate hikes later in 2026. FedWatch odds for a December 2026 hike have climbed from below 50% to around 60%, a hawkish development for equities and rate-sensitive assets.

Analysis

The market is underpricing how fast a nominally “unchanged” Fed can become restrictive simply by removing the easing narrative. That matters most for duration-sensitive risk assets: AI capex, long-duration software, and any equity story whose valuation depends on perpetually cheap funding. The first-order move is not necessarily in the policy rate; it is in the discount rate, term premium, and financial conditions, which can tighten 25-50 bps without a single hike.

The second-order winner is CME: a more hawkish, less predictable Fed regime tends to increase rate-derivatives turnover, especially in the front end and SOFR complex. If the market starts pricing even a modest probability of hikes, vol in short-rate futures should rise, supporting transaction revenue independent of the equity selloff. By contrast, NVDA and INTC face a multiple-risk setup: even if fundamentals remain intact, the market will likely compress EV/sales and reward only the most cash-generative AI beneficiaries, while semi equipment and legacy PC/enterprise demand are more exposed to tighter credit conditions.

The consensus is likely too focused on whether the Fed hikes this week rather than on how quickly expectations can shift from “cuts later” to “higher for longer.” That repricing can accelerate over the next 1-3 months if inflation data remains sticky, and it would hit levered growth and speculative pockets hardest. The embedded contrarian angle is that the market may have already partially discounted hawkish rhetoric, but not the mechanical fallout from higher real yields on buybacks, M&A, and AI infrastructure economics.

A softer downside case is that the Fed treats the inflation spike as energy-driven and stays patient, which would blunt the immediate rate-hike trade. But that still leaves the policy bias less supportive than equities want, meaning the ceiling on multiples is lower even without a hike. In that regime, the risk/reward is better expressed through relative value than outright index shorts.

Key Decisions for Investors

• Go long CME vs short QQQ for the next 4-8 weeks: CME benefits from higher rate-vol and policy uncertainty, while QQQ is the cleanest beta proxy for duration compression.
• Initiate a small short in NVDA via put spreads 1-2 months out: the thesis is multiple compression from higher real yields, not a fundamental demand collapse; risk is capped if the market re-anchors on AI capex strength.
• Pair long CME / short INTC over 1-3 months: CME monetizes policy volatility immediately, while INTC is more exposed to tighter financing conditions and weaker cyclical demand.
• Buy receiver protection in SOFR futures or options for the next FOMC cycle: market is underpricing the probability that “no hike today” still leaves a hawkish path into year-end.
• Reduce exposure to high-multiple, low-free-cash-flow growth baskets until the next two inflation prints confirm disinflation; if inflation cools, re-add aggressively on the first 3-5% drawdown.