New Fed Chair Warsh loses dove as Waller turns hawkish

Today the Fed hawks killed the doves. On the day Kevin Warsh is sworn in as Fed Chairman, he has lost one of the few doves left on the Fed board: Governor Christopher Waller, whom I would have wanted as Fed chairman. Today, Waller gave a speech about how policy risk has changed and to me this seals the deal, because if Waller is thinking this, then we have a lot more governors thinking this as well.

President Trump’s plan to take over the Fed by adding his people and firing others took a big step back today.

Waller’s talking points

Let’s take a look at what Waller said and how I view it.

“While I am hopeful that the conflict is on a path toward a peaceful resolution, it is unclear how long these supply disruptions and their economic impact will last, and that has become one of the biggest questions for the U.S. economy and the path of monetary policy.”

My take, which has been the same since March 21, is that this conflict has taken too long, and the risk of supply shocks worsening is now in play. This will be especially true from June to September if we have no deal, as oil inventories are dwindling. In a recent article, I highlighted my concern that more Fed governors might turn hawkish as this conflict continues.

“Recent jobs data show that the labor market appears to be stabilizing and the unemployment rate is fairly low and stable.”

My 2026 high-end forecast for the 10-year yield was 4.60% with mortgage rates at 6.75%. For this to happen, inflation needed to remain firm while the labor market stabilized and improved. Typically, in the second year of a trade war, things improve after the first year of chaos. We surpassed this level this week, with the 10-year yield getting as high as 4.68% on May 19 and at this writing it’s at 4.57%. 

This forecast to start the year had nothing to do with an impending conflict with Iran. Now, I do admit, without this conflict, we probably wouldn’t be this high with the 10-year yield; however, inflation was stronger than most people thought before the conflict and the labor data has been beating people’s estimates in 2026. 

In a recent episode of the HousingWire Daily podcast, I talked about how the labor market has stabilized. In fact, it’s only 2,000 jobs per month away from my break-even rate, which is how many jobs you need to create to keep the unemployment rate low. I believe it’s 46,000 above what the Fed is looking at. 

Another labor point by Waller:

“After worrying about a deterioration in the labor market through most of 2025, recent data has indicated to me that labor supply and demand have finally come into a rough balance… So, taking into consideration my evaluation of inflation and the labor market as well as the risks to the FOMC’s price-stability and employment goals, I do not expect to support a change to the policy rate in the near term. The next move, whether it is a hike or cut, will depend on the data. Removing the language about the extent and timing of additional adjustments would make this point clear.”

Now, Waller isn’t calling for rate hikes, but he wants the policy language to change, meaning no more rate cut talks until things get better with inflation; that is my take on what he is saying here. What a change we have had since the Iran conflict started! We went from two to three rate cuts in 2026 to now a rate hike priced into 2026.

Conclusion

The 10-year yield was calm on Friday morning at 4.53%, then shot up after news broke about Waller’s take, which took the 10-year yield to a high of 4.58%. It’s been another crazy week for the markets, so it’s fitting we end the week with yields rising from the daily lows on a Fed governor turning hawkish.

Waller should have been Fed Chairmen and I wonder if the timing isn’t a dig at the White House. This is economic gossip talk on my part, but in any case, don’t look for any rate cuts if the conflict continues, folks. And if this story from Politico is accurate, the White House is freaking out about the 10-year yield — just like last year, the 4.50%-4.60% range can change the game plan.