US Stock Market: Fed’s inflation fight puts Kevin Warsh’s credibility to the test

US Federal Reserve Chair Kevin Warsh faces a credibility test as inflation has stayed above the 2% target for over five years, with financial markets pricing in only around a one-in-three probability of a rate hike at the upcoming Wednesday meeting, making a hawkish hold the most likely outcome. The two-year Treasury yield gap with the Fed policy rate has widened to its highest since late 2022, signalling that bond investors expect greater inflation risks ahead. Renewed US-Iran tensions have pushed oil prices higher, complicating the inflation outlook and raising the case for tighter monetary policy.