Inflation, Iran, and Trump: The Fed Under Fire

EUR/JPY

Key zone: 184.00 - 185.00

Buy: 185.50 (on a decisive break of the 185.00 zone) ; target 187.50-188.50; StopLoss 184.80

Sell: 183.50 (on strong negative fundamentals) ; target 181.50-180.00; StopLoss 184.20

On May 18, 2026, Kevin Warsh officially assumed leadership of the Federal Reserve during one of the most difficult periods for the U.S. economy. Inflation has reached its highest level in three years, the Strait of Hormuz remains blocked, the bond market is experiencing serious pressure, and the White House is openly demanding lower interest rates. The next FOMC meeting is scheduled for June 16–17, and it will become the first major test for the new Fed leadership.

Reminder:

The U.S. Senate approved Warsh’s nomination by a vote of 54 to 45 — the narrowest margin in the history of voting for the position of Fed Chair. For comparison, in 2022, Jerome Powell was reconfirmed with 80 votes. The only Democrat who supported Kevin’s nomination was Pennsylvania Senator John Fetterman. This indicates an extremely limited level of political trust in the new regulator head among his colleagues.

The main achievement of Powell’s team is considered to be its ability to significantly reduce inflation during the 2022–2024 period without triggering a classic recessionary spike in unemployment.

• During Powell’s tenure, the Fed went through four fundamentally different phases: policy adjustment during the stress period of 2018–2019, emergency easing and credit programs during 2020–2021, an aggressive rate-hiking cycle in 2022–2023, and the subsequent transition to rate cuts over the last two years.
• Powell’s strength was crisis management and institutional flexibility. In March 2020, the Fed quickly cut rates to near zero, launched large-scale purchases of Treasuries and MBS, stabilized financial markets, and simultaneously created a broad range of emergency lending facilities.
• The key weakness was the delayed response to the inflation reversal of 2021, as well as controversial communication surrounding the average inflation targeting policy.

The overall assessment of Powell’s performance remains mixed, but generally above average. His policy was not flawless; however, the Fed’s ability to effectively correct its own mistakes proved unexpectedly strong.

Can Trump’s protégé improve the rules of the game?

For many years, Kevin Warsh openly criticized the Fed, its forecasting model, and communication approaches. During the April Senate hearings, he outlined the core principle of his position: “The search for truth is more important than repetition.”

According to Warsh, numerous repetitive speeches by Fed officials can create an artificial sense of consensus where a full professional discussion is actually needed. Unfortunately, under the conditions of a crisis-ridden American economy, such an approach seriously undermines both trust in the regulator and the effectiveness of decision-making.

Additional risks for markets are tied to the regulator’s new operating framework:

• The new Fed Chair has consistently opposed the quarterly dot plot — the system under which FOMC members anonymously publish rate forecasts for 1–3 years ahead. Abandoning this mechanism or radically transforming it would be an unprecedented event and could trigger short-term turbulence across all key markets.
• Over recent decades, the Federal Reserve built its reputation on transparency: regular press conferences, open communication, and policy predictability became the foundation of investor confidence. Markets may react extremely painfully to any departure from this model.
• A potential abandonment of press conferences after every FOMC meeting and a return to a quarterly format would effectively turn interim meetings into technical pauses, increasing uncertainty in market interpretation of the regulator’s actions.

At the same time, the key factor remains unchanged: Warsh is under strong political pressure from Trump, to whom he personally promised low interest rates.

However, economic reality has changed significantly. At the time when Warsh actively advocated for lower rates, oil was trading near $70, inflation stood at 2.4%, and transportation logistics through the Strait of Hormuz operated without disruption.

Today, the situation looks different: oil remains above $107 per barrel, inflation stands at 3.8%, the Producer Price Index (PPI) has reached 6.0%, and the Middle East conflict is entering its hottest phase.

Under the current macroeconomic conditions, only a financial kamikaze would cut monetary policy rates. But in today’s American politics, anything is possible.

So we act wisely and avoid unnecessary risks.

Profits to y’all!