Washington, May 25, 2026, 08:03 (EDT)
The Federal Reserve starts a holiday-shortened week with its new chair already facing a harder question than markets expected a month ago: whether the next move in U.S. interest rates may be up, not down. U.S. stock and bond markets are closed for Memorial Day, with NYSE markets and Nasdaq shut and the bond market following its holiday schedule.
That matters now because Kevin Warsh was sworn in as Fed chair on Friday, just as inflation concerns, oil prices and a divided policy committee were moving back to the center of the market debate. The Fed’s own calendar also shows Memorial Day delaying its daily and weekly statistical releases scheduled for Monday until Tuesday.
The week’s main test is Thursday’s Personal Consumption Expenditures price index, or PCE, the inflation gauge the Fed watches most closely because it tracks prices paid by consumers across a broad basket of goods and services. The Bureau of Economic Analysis has scheduled April personal income and outlays data for May 28 at 8:30 a.m., after March PCE inflation ran at 3.5% from a year earlier.
Warsh inherits a federal funds rate — the Fed’s main overnight lending-rate target — held in a 3.50%-3.75% range. The next policy meeting is June 16-17, when officials will vote on rates and publish fresh projections.
Last week’s minutes made clear that the April meeting, Jerome Powell’s last as chair, was no routine pause. Reuters reported that a majority of policymakers saw “some policy firming” as likely appropriate if inflation stayed above the Fed’s 2% target; in plain English, that means a possible rate increase. The meeting had four dissents, the most since 1992, over either the level of rates or the Fed’s forward language. Reuters
Christopher Waller sharpened that message on Friday. The Fed governor said “inflation is not headed in the right direction” and backed removing the Fed’s “easing bias,” language that suggested the next move was more likely to be a cut than a hike. He still said he wanted to hold rates steady near term, not raise them right away. Federal Reserve
Economists have moved, but not all the way. Aditya Bhave, head of U.S. economics at Bank of America, told Reuters that “both hikes and cuts are feasible” while calling a hold the base case. Scott Anderson, chief U.S. economist at BMO Capital Markets, warned that economists’ inflation track record had been poor lately and that more frequent shocks were a risk. Reuters
Markets are also watching oil more than usual for a Fed story. Gold rose on Monday as hopes for a U.S.-Iran deal pushed oil below $100 a barrel and weakened the dollar, Reuters reported. UBS analyst Giovanni Staunovo said lower oil prices were lifting gold because investors expected them to affect Fed policy; traders saw a 40% chance of a 25-basis-point December Fed rate hike, with one basis point equal to one-hundredth of a percentage point.
The equity backdrop is less hostile than the rate debate suggests. The S&P 500 had logged eight straight weekly gains before the holiday, helped by earnings, but Anthony Saglimbene, chief market strategist at Ameriprise, said investors were moving past earnings season and the macro environment was taking “more center stage.” Reuters
But the path is not one-way. A durable fall in oil prices could cool headline inflation quickly and keep the Fed on hold, or reopen the case for cuts later this year if the labor market weakens. The downside is uglier: energy and tariff costs could spread into broader prices, push inflation expectations higher and force Warsh’s Fed toward hikes even as housing and consumer sentiment remain under strain.
Fed speakers will fill some of the gap left by the holiday. The calendar lists Waller on the economic outlook and Lisa Cook on artificial intelligence and the financial system on Wednesday, Philip Jefferson on global economic developments and the U.S. economy the same day, and Michelle Bowman on monetary policy on Friday.
For now, the Fed’s message has shifted. The question is no longer just when rate cuts begin. It is whether Warsh can hold a split committee together if Thursday’s inflation data keeps the pressure on.
