After months of criticizing Jerome Powell for his reluctance to lower rates, Donald Trump finally has his nominee at the head of the Fed. Nevertheless, he will still have to contend with a more hawkish central bank.

On Friday, Kevin Warsh was sworn in at the White House. He takes over in charge of the Federal Reserve for a 4-year term.

However, he arrives in a context far removed from that when he was nominated in January. Indeed, the war in Iran has sent energy prices soaring and triggered a resurgence of inflation. This has effectively sidelined the rate cuts signaled by the Fed and anticipated by the market at the start of the year.

In April, inflation jumped to 3.8% on an annual basis, its highest level since May 2023. And with the Strait of Hormuz now closed for three months, the shock to energy prices is expected to be last a good while.

As a result, the question is no longer when the Fed will cut rates, but rather whether it will have to raise them. Several Fed officials are now expressing their desire to raise rates. According to the CME FedWatch tool, there is roughly a 50-50 chance of a rate hike by the end of the year.

With inflation remaining above the 2% target for five years and a resilient labor market, the Fed is compelled to harden its stance.

This is a Fed that, much to Donald Trump's chagrin, has been very dovish in recent months. It should be noted that the Fed reduced rates by 175 basis points between September 2024 and December 2025. Most importantly, it did not hesitate to act as soon as the labor market showed signs of weakness, without waiting for inflation to return to the target 2%.

However, it is not just the macroeconomic backdrop that is making the Fed more hawkish. Kevin Warsh replaces Stephan Miran on the Fed Board of Governors. Miran, a former Trump advisor appointed last August, was by far the most dovish member of the committee. He voted against the majority decision at every meeting he attended (advocating either for a rate cut or for a more aggressive cut).

And while Jerome Powell remains on the Board of Governors, it is now Kevin Warsh who leads the debates. A man who built a reputation as a hawk during his tenure at the Fed between 2006 and 2011, whereas Jerome Powell is undeniably a dove.

It appears that Donald Trump himself has understood that the Fed will not be able to lower rates in the immediate future. "You can't really look at the numbers until the war is over," he conceded in an interview with Fortune last week.