Federal Reserve expected to raise interest rates by 2026 under Kevin Warsh

Kevin Warsh barely had time to settle into the Federal Reserve chairman’s office before reality started rewriting his playbook. The former Fed governor, sworn in around May 22, 2026, as Jerome Powell’s successor, initially came in with a rate-cutting posture. Now economists say he’ll likely need to do the opposite: raise interest rates before the year is out.

The culprit is inflation, which has climbed above 3% for the first time in three years.

From rate cuts to rate hikes: a sharp reversal

Traders now assign a greater than 70% probability to at least one rate hike by the end of 2026. The federal funds rate currently sits in a target range of 3.50%-3.75%, and the consensus had been that it would stay there through year-end. That consensus is fracturing.

The primary driver is geopolitics, not domestic spending. Soaring oil prices tied to the ongoing Iran conflict have injected fresh inflationary pressure into an economy that was already running warm.

Warsh’s first policy meeting as chair is scheduled for June 16-17, 2026.

Warsh’s bigger agenda

Warsh has signaled a broader vision for reshaping how the Fed operates. He’s pushing for a smaller balance sheet, which currently exceeds $6 trillion. He’s also advocating for revised inflation metrics, with a stronger emphasis on underlying price pressures rather than headline numbers that can be skewed by volatile categories like food and energy.

Trump has publicly stated he intends to let Warsh handle interest rate decisions autonomously. That’s a notable departure from Trump’s first term, when he routinely pressured Powell to cut rates via social media broadsides.

What this means for crypto and risk assets

For crypto investors, higher interest rates raise the opportunity cost of holding assets that generate no yield. This dynamic played out during the 2022-2023 rate hiking cycle under Powell, when Bitcoin fell from its all-time highs as the Fed pushed rates upward by a cumulative 525 basis points. The current situation involves a potential single 25-basis-point hike, a far cry from that cycle’s magnitude, but the directional signal matters.

Traders should be watching the June meeting closely, not just for the rate decision itself but for any changes to the Fed’s dot plot projections and balance sheet runoff timeline.

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