Fed officials turn more hawkish, opening the door to another rate increase
Article by: Long Yue Source: Wall Street Journal
Federal Reserve officials who had leaned toward rate cuts are increasingly backing away from that view, with some now openly acknowledging that another rate hike may be needed. The shift leaves the rate-cut camp with few, if any, advocates on the Federal Open Market Committee.
The Wall Street Journal published an in-depth report by veteran Fed watcher Nick Timiraos ahead of new Fed Chair Kevin Warsh's first policy meeting. Widely viewed by markets as a de facto "Fed spokesperson," Timiraos wrote that Warsh is stepping into the role at a particularly awkward time.
Warsh had argued publicly for rate cuts last year, a stance that helped him win support from President Donald Trump. Yet soon after Warsh's appointment, internal Fed debate pivoted away from "when to cut" toward "whether to raise." The backdrop has turned less friendly to easing: inflation has moved higher this year and is now above 3%; the labor market has regained momentum; AI infrastructure-driven supply bottlenecks and higher oil prices linked to the Iran conflict have added to price pressures. As a result, many of the arguments that underpinned expectations for cuts have faded.
One of the clearest signs of the pivot is the change in tone from Fed Governor Christopher Waller. Last year, he cited labor-market softening and even voted for a rate cut in January, against most colleagues. Last month, Waller said new data "has pushed me in another direction." He backed removing the "accommodative bias" language from the statement and added: "I can no longer rule out the possibility of raising rates at some point in the future." On market chatter about a September cut, he was blunt: "As a serious central bank official, you cannot seriously talk about this."
Even policymakers seen as centrists are signaling a higher bar for cuts. Governor Lisa Cook reiterated last month that holding rates steady made sense and that her baseline still assumed inflation would cool. She also added a condition that would have been hard to imagine a year ago: if disinflation "does not materialize in a timely manner," she is "prepared to raise rates." A key concern is that five years of inflation above target may be shaping wage and price-setting behavior, embedding expectations.
Hawks argue the data are increasingly validating their stance. After the Fed cut rates late last year, Cleveland Fed President Beth Hammack, Dallas Fed President Lorie Logan, and Minneapolis Fed President Neel Kashkari dissented, saying the case for easing was weak. In April, the same trio pushed to strip language implying a cut was "more likely next," aiming to keep a hike clearly on the table.
Recent comments underscore that posture. Hammack said this month that holding steady is reasonable, "but if recent trends continue, action may be needed soon." Logan went further: "I am increasingly concerned that interest rate hikes may be necessary later this year." Some officials also note that as inflation rises, the inflation-adjusted "real" policy rate falls, meaning policy can become less restrictive even if the headline rate is unchanged.
Warsh's debut meeting now carries heightened attention. The Fed is expected on Wednesday to keep the benchmark rate unchanged at 3.5% to 3.75%. Markets are focused on two elements. First, the statement: the "accommodative bias" phrase, in place for months and read as tilting toward cuts, is widely expected to be removed, signaling a more balanced view between a cut and a hike. Second, the quarterly dot plot: in March, more than a dozen officials penciled in at least one cut this year. This time, most are expected to project no change for 2026, with some even indicating hikes.
Warsh has long criticized the Fed's reliance on "forward guidance" tools such as the dot plot and could opt to withhold his own projections or reduce guidance in official communications. Timiraos argues investors will still focus on the underlying message, while the distinction may matter most to the president pushing for lower rates.
Chicago Fed President Austan Goolsbee summed up the bind last month: "We now face a fairly serious inflation problem developing, but the labor market remains essentially stable." That combination has pushed the committee away from cuts and toward a policy mix where the next move could be a hike—even as Warsh confronts a framework and a committee he did not choose, and a direction at odds with the priorities of those who elevated him.
