US inflation meets forecasts — all eyes now on Kevin Warsh

With US inflation data coming in broadly in line with market expectations and pressure for a rate hike easing, attention is turning to what Federal Reserve Chair Kevin Warsh will say. Markets widely expect the Fed to hold rates steady, meaning Warsh's signals on the policy path ahead could prove more consequential than the rate decision itself.

The US May consumer price index and producer price index, both released recently, largely met market forecasts, according to the financial investment industry.

The May CPI, released June 10, rose 4.2 percent year-on-year — the highest reading since April 2023, but in line with expectations. Core CPI rose 0.2 percent month-on-month, coming in below the 0.3 percent forecast and signaling relatively contained underlying price pressures.

The May PPI, released the following day, rose 1.1 percent month-on-month, exceeding the 0.7 percent forecast. Core PPI — which strips out energy — rose just 0.4 percent month-on-month, down from 0.7 percent in April. Markets concluded that core inflation pressures in both the CPI and PPI remained relatively subdued last month.

As a result, markets expect the Fed to leave its policy rate unchanged at the current 3.50–3.75 percent range at the FOMC meeting being held Tuesday and Wednesday local time.

With a rate hold now seen as highly likely, focus has shifted from the rate decision itself to the Fed's forward guidance — and in particular, the monetary policy stance Warsh will lay out at his post-meeting press conference. Although May CPI and PPI broadly met forecasts, the absolute level of inflation remains elevated, and the Fed may signal heightened vigilance on prices.

That concern is reinforced by expectations that the May personal consumption expenditures price index — calculated using CPI and PPI data — will show a larger increase than in April. The Fed uses the PCE index as its primary inflation gauge when setting monetary policy.

Moon Da-woon, a researcher at Korea Investment & Securities, estimated that May PCE headline inflation will rise 0.5 percent month-on-month and 4.1 percent year-on-year — up from 0.4 percent and 3.8 percent, respectively, in April.

Analysts at securities firms said Warsh may move to temper the hawkish voices likely to grow louder within the Fed.

"With the European Central Bank having raised rates by 25 basis points, there are concerns the Fed could also adopt a somewhat hawkish stance," said Kim Yu-mi, a researcher at Kiwoom Securities. "However, if Warsh characterizes the recent price increases as a temporary shock stemming from Middle East geopolitical tensions, the risk of broader tightening fears and financial market disruption would be limited."

Lee Gyeong-min, a researcher at Daeshin Securities, also said Warsh is more likely to strike a dovish tone than a hawkish one, given that he is a Donald Trump appointee and that this is his first FOMC meeting and press conference.

Both researchers said the Fed's dot plot and the FOMC statement itself could turn more hawkish. They added that a more hawkish tone within the Fed does not necessarily signal an early rate hike, and that the probability of a rate increase this year is unlikely to rise significantly.

Park Sang-hyeon, a researcher at iM Securities, said the "trimmed mean PCE" — Warsh's preferred inflation gauge, which strips out the most and least volatile items before averaging the rest — stood in the low-to-mid 2 percent range as of April. "The key question at the June FOMC meeting is how much Warsh can neutralize the hawkish voices within the Fed, which are bound to grow louder," Park said.