Uncertainty Mounts Inside the Fed
Kevin Warsh, the new chairman of the Federal Reserve, was sworn in on Friday by Donald Trump.
The President of the United States, to the surprise of observers following his pressure on the Fed to cut rates, suggested that the policymaker should run the central bank independently.
“I want, that Kevin be completely independent. I want him to be independent and simply do a great job. Don’t look at me, don’t look at anyone, just do your job and do a great job,” Trump said during the inauguration ceremony.
At the same time, Trump suggested that Fed policy under Warsh should support economic recovery by making “right” decisions.
Americans who expect inflation to rise fear that the White House will intervene in monetary policy to a degree that threatens the central bank’s autonomy, especially during a period of economic problems stemming in part from the conflict in the Middle East.
Krzesztof Kamiński, a financial markets analyst at OANDA TMS, shared his opinion on the upcoming Fed meeting that Warsh will lead in an interview with FXMAG.
“I would not expect a quick rate cut by the Fed,” he said.
The basic scenario for the coming months remains rather to keep rates in the range 3,50–3,75%, especially during the meeting scheduled for 16–17 June.
In the last Fed communication, rates were left unchanged, emphasizing that further decisions depend on incoming data and the goal of bringing inflation to 2%. For Kevin Warsh to vote for a rate cut, he would have to completely ignore inflation. I do not expect that from an economist.
“The market behaves similarly, practically not pricing in a rate cut in June. The probability of rates staying unchanged is about 98.1%,” he added.
The expert also explained how the war between the United States and Israel with Iran has affected the shape of current Fed forecasts.
The war in the Middle East is one of the key reasons for Fed caution, though not the only one. The conflict drives up oil prices and increases inflationary risks. Brent oil prices have risen above 100 USD per barrel, and further blockage of the Strait of Hormuz remains a key risk factor for energy supply.
Additionally, the US core inflation remains high, a stronger dollar serving as a safe haven, hawkish stance of some FOMC members and the fact, that Warsh, even if politically expected to cut rates, has no full freedom of action without a majority in the Committee.
“Reuters indicates that most economists do not expect Fed rate cuts in 2026, and part of the market has even started to allow for a rate hike,” he summarized.
Table. Market‑priced probability of Fed rate changes in upcoming meetings
Source: CME FedWatch Tool.
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Dollar and Euro on Monday, May 25
The dollar to zloty on Monday, May 25 is at 3,63 PLN.
Here are Krzysztof Kamiński’s forecasts for the USD/PLN and EUR/USD pairs for the coming days.
“In my base scenario for the last days of May and early June, EUR/USD should trade in the range 1,16-1,17. The dollar benefits from no Fed rate cuts and demand for safe assets, while the euro remains constrained by stagflation risk in Europe and high energy prices,” he said.
“For USD/PLN I assume a range 3,60–3,70. The zloty remains relatively resilient, but with a strong dollar and heightened geopolitical risk it is hard to expect a lasting drop below 3,60,” he added.
In a scenario of conflict escalation, further oil price rises and stronger capital outflows from risk, one should expect EUR/USD to move below 1,15 and USD/PLN to rise to the range 3,70–3,75.
Conversely, in a de‑escalation scenario with falling oil prices, EUR/USD could return to the range 1,17–1,18 and USD/PLN could drop to around 3,50–3,60.
Chart. Dollar to zloty (USD/PLN)
Source: Trading Economics.
The euro to dollar reaches 1,16 USD.
Chart. Euro to dollar (EUR/USD)
Source: Trading Economics.
Read also: Dollar before a breakout? Expert: “Capital will flow back to USD”
See also: Dollar before a “nervous and dynamic” move, euro waiting to fall? Expert issues forecast for USD/PLN and EUR/USD
Source: Bloomberg.
