Kevin Warsh, 'Mulling' Surprise Rate Cut Amid CME Rate Hike Bets... Succumbing to Trump?

▲ Bitcoin (BTC) decline, Dollar (USD)/ChatGPT generated image

As Kevin Warsh takes office as the new chairman of the U.S. Federal Reserve, market debates surrounding interest rate policy are intensifying. Traders are leaning towards the possibility of a rate hike in 2026, but Bitcoin (BTC) investor and market analyst Lawrence Lepard argued that Warsh is more likely to pursue rate cuts.

Cointelegraph reported on May 23 (local time) that the federal funds target rate is currently in the 350-375 bp range, and traders are pricing in at least a 25 bp rate hike by December 2026. However, Lepard believes that statements from other U.S. officials, including Kevin Hassett, Chairman of the White House National Economic Council, and Scott Bessent, Secretary of the Treasury, support the possibility of rate cuts in 2026.

Lepard stated, “Warsh will cut rates. He will cite AI productivity and truncated inflation as justifications, claiming that all war inflation is transitory. Two data points from today's Wall Street Journal support this view.”

U.S. President Donald Trump announced at Warsh's inauguration on Friday that the U.S. would address its growing national debt problem through “growth.” Cointelegraph reported that these remarks suggest an expansion of the money supply and a low-interest-rate regime. Investors, traders, and analysts continue to debate whether Warsh will cut rates and whether such a decision could boost the prices of risk assets, including Bitcoin and cryptocurrencies.

Market prices are still pointing in a different direction than Lepard's forecast. According to the CME Group's FedWatch Tool, approximately 68% of traders have priced in a rate hike of 25 bp or more by December 2026. Trump said on Friday, "We want to stop inflation, but we don't want to stop greatness," a statement that drew skeptical reactions from investors, economists, and market analysts.

Whether Warsh will maintain the Fed's independence is also at the center of the controversy. In April, U.S. lawmakers questioned whether Warsh could protect the Federal Reserve's independence. Senator Elizabeth Warren argued that Warsh's nomination could create potential conflicts of interest and that the Trump family's cryptocurrency business could benefit from the new Fed chairman's policies.

As uncertainty over interest rate policy grows, some observers have suggested that Bitcoin, cryptocurrency, and stock investors could experience asset price declines in the months following the change in Fed leadership. The first test of the Warsh era began at the point where the prevailing market consensus of rate hike expectations clashes with the views of some analysts who anticipate rate cuts.

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