Trump's Fed Pick Kevin Warsh Faces Brutal Trifecta: Oil Surges, Private Credit Cracks, Inflation Sticks—Can He Cut Rates?
Kevin Warsh is about to inherit the most hostile environment for rate cuts since the Fed started easing last September.
Donald Trump‘s Fed Chair nominee takes over from Jerome Powell in May with oil near $95, private credit in open distress and inflation still above target.
Polymarket traders now price a 22% chance of zero rate cuts in 2026, roughly double where that contract sat in January when consensus still expected two or three cuts.
The most likely single outcome is one cut at 30%. The April 28 FOMC decision is priced at 91% hold.
J.P. Morgan Global Research no longer expects the Fed to cut at all this year.
Oil Is The Problem Nobody Can Hedge Away
Iran is laying mines and attacking vessels in the Strait of Hormuz, and even a historic 400-million-barrel emergency reserve release from the IEA hasn’t been enough to bring prices down.
Analysts warn oil could breach $100 if the war drags on.
On Polymarket’s June contract, bettors price 75% odds that oil hits $110 by June 30, a 37% chance it reaches $150 and a 17% shot at $200.
That is not a backdrop in which the Fed typically cuts rates.
Private Credit Is Cracking In Real Time
Investors fear that billions in private credit loans to software companies may need to be marked down as AI threatens to disrupt the borrowers those loans were built on.
KKR & Co. Inc. (NYSE:KKR) CFO Robert Lewin said Wednesday that KKR’s publicly traded credit fund FSK has faced near-term return pressure and is down 34% year-to-date.
BlackRock Inc. (NYSE:BLK) fell 6% last week after capping redemptions from its Corporate Lending Fund, and the stock is down 16% year to date.
Blue Owl Capital Inc. (NYSE:OWL), down 40% this year, permanently halted quarterly redemptions and is liquidating $1.4 billion. The SEC is ramping up 2026 examinations into valuation practices across the sector.
Inflation Refuses To Break Below Target
February CPI came in at 2.4%, matching January and still above the Fed’s 2% goal. That data was collected before the Iran war sent energy prices surging, meaning the next print may be worse.
Powell said at the January meeting it was hard to argue policy is significantly restrictive right now. The January FOMC minutes revealed some members even raised the possibility of rate hikes if inflation stays persistent.
Trump has made clear he wants lower rates. Warsh may want to deliver them. The trifecta may not let him.
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