Trump's man: how the new head of the US Federal Reserve will deal with the crisis
On June 17, the first meeting of the Federal Open Market Committee will be held under the chairmanship of the new head of the Federal Reserve System (FRS) Kevin Warsh, appointed by the administration of Donald Trump after a protracted approval procedure. The changing of the guard at the main central bank of the planet coincided with the moment when the global financial system began to show signs of stagflation. The forecast of the World Economic Forum (WEF) has recorded an unprecedented consensus among the world's leading analysts: 94% of the surveyed chief economists expect global inflation to accelerate, and 90% predict a sharp slowdown in economic growth. How the new head of the world's largest central bank will affect the global economy is described in the Izvestia article.
"I love inflation"
The main challenge for Warsh's debut meeting will be the latest U.S. inflation data released by the Labor Department on June 10. The statistics turned out to be worse than market expectations. The consumer price index accelerated to 4.2% in annual terms in May (compared with 3.8% in April). This is the highest level since May 2023 and the third consecutive month of accelerating price growth. The main driver was expected to be the energy sector, which accounted for more than 60% of the index's total monthly growth. Against the backdrop of the prolonged blockade of the Strait of Hormuz, energy prices in the United States jumped by 23.5% year—on-year, while gasoline at gas stations rose by 40.5% and fuel oil by 58.9%.
Core inflation, excluding volatile food and energy prices, also showed acceleration, rising to 2.9% in annual terms (the highest since September 2025). The monthly growth of the index was 0.5%, confirming that inflation is no longer purely energetic and is beginning to penetrate deeper layers of the economy, including the service sector, rental housing and logistics.
Donald Trump reacted to these statistics in his traditional manner, telling reporters at the White House: "I love this inflation. The numbers are great." He tried to convince voters that the situation is under his personal control, citing the fact that the US military is conducting covert operations to export oil from the region without Iran's knowledge, which is why oil is trading around $90 per barrel. However, the average person sees something else: the average price of gasoline at American gas stations is at $4.15 per gallon, a dollar higher than a year ago.
Desperate measures
While Washington is trying to mask the problems, other central banks of the world are moving to emergency measures. The eurozone and the United Kingdom, deprived of their own raw material base, are among the first to suffer.
On June 11, the European Central Bank (ECB) became the first of the world's largest regulators to raise interest rates in response to the Middle East crisis. As inflation in the eurozone accelerated to 3.2% in May, the ECB governing council raised the base rate from 2% to 2.25%. Its head, Christine Lagarde, was forced to take this step, despite the extremely sluggish growth of the European economy, effectively recognizing the priority of fighting inflation over supporting GDP. Note that the EU's wealth base, the industrial base, continues to shrink in the reality of high stakes, on top of everything else. In Germany, the level of industrial production has fallen to 2003 levels.
In the United Kingdom, the situation looks even more complicated. The British Chamber of Commerce has lowered the country's GDP growth forecast for 2026 to an anemic 0.9% (which is lower than the population growth rate). At the same time, analysts of the chamber expect that inflation will peak at 3.8%. The UK debt market has already responded to these expectations: the yield on two-year government bonds has jumped to the highs of 2024.
Similar processes in a milder form are taking place in Asia. In the ASEAN+3 bloc, the inflation forecast for the current year has been raised from 1.4% to 1.8% due to the rising cost of raw materials and fuels, which threatens the profitability of key technological and manufacturing industries in the region.
Kevin Warsh takes office as head of the Federal Reserve in a situation of conflict between the demands of the Oval Office and careful monetary policy. Trump nominated Warsh for this post precisely because he publicly criticized the harsh policies of former Fed Chairman Jerome Powell and argued that the regulator had room to lower interest rates. The American leader urgently needs cheap money and the low cost of servicing the national debt (which has been growing rapidly in recent years) before the November elections.
US President Donald Trump and Kevin Warsh
However, with an inflation rate of 4.2%, any rate cut would mean a chain of unpleasant consequences. Since the outbreak of the war in the Middle East, oil has risen in price by 50%, and the cost of nitrogen fertilizers has soared by 80% due to a shortage of raw materials. These costs have not yet been fully recovered in consumer prices: the agricultural sector and industry are working on long-term contracts, the reserves of which will run out by the end of summer. To lower the rate now means to accelerate inflation expectations even more and get, perhaps, a double—digit price increase by winter.
The federal funds futures market has already reacted to the new realities. Investors' expectations have turned 180 degrees: if at the beginning of the year the market was planning a series of rate cuts with 100% confidence, today traders have practically ruled out such a scenario. Moreover, futures quotes began to price the probability of a Fed rate hike before the end of 2026 as a more realistic scenario.
Zugzwang debut
Warsh faces a daunting task at the June 16-17 meeting — to preserve the Fed's independence and credibility in the eyes of investors without provoking an open conflict with the president who appointed him.
Most analysts agree that the rate will remain in the current range of 3.5–3.75% at the meeting. The main intrigue will lie in the rhetoric of the new chairman and his willingness to abandon the "soft" course. It is expected that Warsh may undertake radical reforms in the regulator's communications, up to and including canceling the publication of a dotted chart of rate forecasts in order to free his hands for maneuvers in conditions of high volatility.
For global markets, the Fed's decision, as it often happens, will turn out to be fateful. The United States knows how to export inflation: if prices rise in America, it is highly likely to affect the rest of the world, adding 1-2 percentage points to price increases everywhere. In addition, a rate cut could further hit the dollar, which is already in a difficult position amid the gradual de-dollarization of the global system.
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