Rate Cuts on Backburner

Markets may be getting ahead of themselves if they expect Kevin Warsh to quickly take over at the Fed and begin cutting rates. His confirmation looks uncertain, and even if he arrives in time for the June meeting, inflation is still running too hot to make easing easy.

Higher energy prices tied to the Iran conflict are keeping headline inflation elevated, while core measures remain above the Fed’s target as well. If oil prices fall back and geopolitical risks ease, modest rate cuts could become more plausible.

For now, though, uncertainty around war developments and central bank policy argues for caution. Stocks have held up well, but valuations still look stretched relative to the outlook for profits and interest rates.