US President Donald Trump is due to swear in Kevin Warsh as the next Federal Reserve Chairman on Friday at the White House, according to a White House official speaking to CNBC.
The US Senate voted last week for Warsh to succeed temporary Federal Reserve Chairman Jerome Powell for a four-year term starting this Friday.
Inflation And Rate Pressure
Trump has called for lower interest rates since the start of his second presidency, while recent data show disinflation has reversed.
In April, the US Consumer Price Index (CPI) rose 3.8% year on year and the Producer Price Index (PPI) increased by 6%.
LSEG data show money markets have priced in no interest rate cuts and are instead expecting a rate rise towards the end of the year.
The report was corrected on May 18 at 17:45 GMT to state that CPI rose 3.8% in April, not 3.7%.
Market Context And Trading Focus
Looking back to this time last year, we remember the uncertainty surrounding Kevin Warsh’s appointment as Fed Chairman in May 2025. The economic data was hot, with April 2025’s CPI at 3.8%, and the political pressure for rate cuts was intense. The market at the time was correctly betting on the Fed holding its ground.
True to form, the Fed did not bow to the pressure and instead delivered one final quarter-point hike in late 2025, bringing the Fed Funds Rate to its current level of 5.50-5.75%. This hawkish stance was a direct response to the sticky inflation we saw throughout last year. We have seen the effects of this policy play out over the last twelve months.
The policy has had some success, as the most recent CPI reading for April 2026 has cooled to 2.9%, a notable improvement from the 3.8% print a year ago. However, this has come at the cost of economic growth, with recent data showing GDP slowing to an annualized 1.5%. This puts the Fed in a difficult position, caught between stubborn inflation and a weakening economy.
For derivative traders, this conflict creates significant opportunities in volatility. With the Fed’s next move being a toss-up between holding firm or signaling a future cut, options on major indices like the S&P 500 are a key area to watch. Implied volatility is likely to spike around upcoming Fed meetings and inflation data releases.
This is also a critical time for trading interest rate futures. The spread between the 2-year and 10-year Treasury yields, which currently sits at -35 basis points, is reflecting this uncertainty about the path of future rates. We are seeing traders use SOFR options to position for either a deeper inversion if the Fed stays hawkish or a rapid steepening if a pivot to cuts becomes imminent.
The US Dollar Index (DXY) has remained strong, currently trading around 106, as rate cut expectations have been pushed out. Any hint from Fed officials that they are concerned about slowing growth could cause a sharp reversal, presenting opportunities in forex options. Consequently, the VIX, which has been hovering near 14, is sensitive to any surprise and could be used to hedge against a sudden market downturn.
