Inflation Is Spiking – but the Fed Could Still Cut Rates (And It Has Nothing to Do with Trump)

The June meeting of the Federal Open Market Committee will be the first under new chairman Kevin Warsh, and all signs point to the fact that the Fed will keep rates stable, despite President Trump’s clear hopes that a shift in Fed leadership would lead to a long-anticipated rate cut.

Since Warsh was sworn in on May 22, 2026, the President has kept up the pressure on Warsh to lower rates to stimulate demand or, at the very least, not to raise rates. In fact,  President Trump told Meet the Press in June that while “Kevin is fantastic, and I want him to do whatever he wants,” he also felt that “it’s unfair that whenever you do great, they want to raise interest rates.”

While Warsh is unlikely to bow to the President’s demands, having made clear that he believes the Fed should be “strictly independent” in making monetary policy, there actually is an argument to be made that a rate cut could be justified for other reasons.

A rate cut is unlikely — but there may be justification

To be clear, a rate cut is extremely unlikely at the upcoming June FOMC meeting. In fact, bond markets have priced in at least one rate increase before the end of 2026.

Still, some analysts have argued that the Fed could still consider a modest recalibration if inflation proves largely transitory. A significant portion of the recent rise in headline CPI stems from elevated gasoline prices, which have been heavily influenced by the ongoing conflict in Iran and related energy market disruptions.

However, this argument faces strong headwinds. While geopolitical tensions have driven energy volatility, core inflation remains above the Fed’s 2% target, and the labor market continues to show resilience. Most economists and market participants view even a small rate cut in June as highly improbable. Instead, attention is focused on whether the Fed will shift its communication to leave the door open for potential hikes later in the year.

Of course, the recent House vote to restrain further U.S. military involvement in Iran adds another layer of uncertainty to the energy outlook. Still, any de-escalation is likely to take time to materially affect global oil supplies and consumer prices.

Unemployment remains another variable. While job numbers beat expectations in the May report, long-term unemployment remains a persistent issue, and both hiring and quit rates remain depressed, suggesting the labor market may not be as robust as the topline numbers suggest.

If the Iran conflict is resolved and the labor market softens, the forecast could turn again towards the rate reductions originally anticipated at the start of 2026. It’s extremely unlikely this would happen before the mid-June meeting, but it’s certainly a possibility later in the year.

Is there any appetite for a rate cut?

It’s also worth noting that the Fed currently has an easing bias baked into its guidance, which was supported by the majority of current governors. While some analysts expect this language to be removed from the Fed’s guidance in June, it currently remains in force.

Further, while Warsh is unlikely to advocate for rate cuts in the June meeting, the new Chairman has expressed an openness to a rate reduction this year, suggesting that slashing the Fed’s bloated balance sheet could create the necessary room to lower borrowing costs.

He has also argued that productivity gains driven by artificial intelligence could pave the way for lower rates, and that the Fed should be looking at inflation differently, with a shift in focus to trimmed averages or other alternative measures instead of core inflation, which is more vulnerable to wild swings because of outliers like energy price surges.

All eyes will be on Warsh and the Fed in mid-June for signs of the future direction the Fed will take. Ultimately, if the new Chairman sends signals that future cuts could be on the table, it will be these factors, rather than the sustained pressure campaign from the Administration, that justify the move.