Before Walsh has taken office, the market has already been pricing in interest rate hikes

On May 20, 2026, just 48 hours before Kevin Walsh was sworn in as Chairman of the Federal Reserve, global financial markets had already "cast their votes"—not for rate cuts, but for rate hikes.

The yield on 30-year U.S. Treasury bonds soared to 5.19%, marking the highest level since 2007, while the 10-year yield simultaneously broke through 4.66%, leaving the market completely unanchored. The head of interest rate strategy at BNP Paribas bluntly stated: "Above the 5% threshold, the market has gone crazy." The interest rate swap market gave an even harsher pricing: the probability of a Fed rate hike before the end of the year exceeded 80%, the probability of rates remaining unchanged in June reached as high as 99.2%, and the probability of a 25-basis-point hike in July rose to 4.2%. Rate cuts have become a luxury hope.

Even more intriguing is Trump's shift in attitude. Previously exerting strong pressure for rate cuts, he suddenly softened, acknowledging that "the interest rate outlook is highly uncertain," suggesting that inflation can only be assessed after the Iran war ends, and stated that he would let Walsh "do things his way." This means Trump's insistence on rate cuts has effectively collapsed. Walsh's policy stance is inherently hawkish, advocating aggressive balance sheet reduction and insisting on controlling inflation before discussing rate cuts, which fundamentally conflicts with Trump's desire for short-term stimulus.

Walsh will officially succeed Powell on May 22, but the situation before him can be described as "hellish": stubborn inflation, with the April CPI up 3.8% year-on-year and core PCE still above 3%; oil prices surging to $112 due to the blockade of the Strait of Hormuz; gold plummeting from this year's high of $5,600 to $4,480, a drop of nearly 18%. More troublesome is that Powell has not left; he will remain on the Board until 2028, breaking the 75-year transition precedent. Under this "one mountain, two tigers" scenario, internal divisions within the Federal Reserve will only intensify. The last FOMC meeting ended in an 8-to-4 vote, the largest split since 1992; Walsh will need the support of the majority of members to push any policy shift.

The prophecy of Wall Street veteran Adeney is deafeningly clear: Wash may need to raise interest rates by 25 basis points as early as July to establish credibility, trading early tightening for later flexibility — this is exactly the scenario the market is pricing in. A research report from CICC also clearly points out that U.S. PCE inflation may remain above 3.5% for the year, with core PCE over 3%, far higher than the 2% target, making it difficult for the Fed to further cut rates this year under the baseline scenario. On the same day, Philadelphia Fed President Hoecker stated: 'The market has already begun considering the possibility of a rate hike, which is healthy and positive.'

Wash hasn’t even taken that chair yet, but the market has already made the choice for him. When the bond market 'welcomes' the new chair with yields at a 19-year high, when Trump shifts from a pressurer to a spectator, and when Powell watches closely from behind, this Federal Reserve power transition is bound to be the beginning of a storm, not the end.