Warsh hammered home the message – the data said something else

When Fed Chair Kevin Warsh took the witness stand on Capitol Hill on July 14, the tone was impossible to misread. He described high inflation as "an unreasonable burden on American households and businesses" and stressed that the central bank has "zero tolerance for persistently high price growth," according to Nasdaq Markets.

But while Warsh was speaking, a report from the Bureau of Labor Statistics landed – and it told a very different story.

Fed Chair Warsh: – Inflation is too high. The market didn't believe him - Bilde 1

June CPI figures: Surprisingly weak price growth

The Consumer Price Index (CPI) for June fell 0.4 percent from the previous month – and the annual growth rate dropped to 3.5 percent. That was well below market forecasts of 3.8 percent and a marked decline from May's reading of 4.2 percent.

A key driver behind the drop was gasoline prices, which plunged nearly 10 percent during June, partly linked to a temporary ceasefire between the US and Iran.

Core CPI – which excludes food and energy – was completely flat month over month and came in at 2.6 percent year over year. Analysts had expected 2.8 percent.

3.5%
Annual CPI June 2026
2.6%
Core CPI year/year
42% → 16%
Rate-hike probability
Fed Chair Warsh: – Inflation is too high. The market didn't believe him - Bilde 2

The market voted with its feet

The reaction in the bond market was immediate. Traders had the day before priced in a 42 percent probability of a quarter-point rate hike at the July 28–29 FOMC meeting. Following the CPI release and Warsh's testimony, that figure fell to around 16 percent, according to the research material.

Equity indices responded positively: the S&P 500 rose 0.38 percent, the Nasdaq advanced 0.90 percent, while the Dow Jones barely moved. Technology and growth stocks led the way.

The market chose to trust the data – not the central bank chair

Matt Weller, global head of research at FOREX.com, argued the report had effectively "torpedoed any chance" of a rate hike in July. Marta Norton of Empower Investment nonetheless warned that the bond market could be shaped by "summer yield curve expectations."

Geopolitics and the mortgage market are holding back

Despite the weak inflation data, mortgage rates actually edged higher following the report. The 30-year fixed rate ended the week at around 6.63 percent, as markets kept a close eye on renewed tensions in the Middle East and rising oil prices. Fannie Mae and the Mortgage Bankers Association expect rates to remain in the 6.4–6.5 percent range through 2026 and into 2027.

The temporary decline in energy prices – which contributed to the favorable CPI figures – quickly proved vulnerable. When tensions in the Iran conflict flared up again later in the week, oil prices rose once more, sparking fresh inflation fears and market volatility.

The odds have climbed back

Since July 14, the rate-hike probability has recovered. Markets are once again pricing in a meaningful chance that the Fed will act at its meeting later this month, even though the final outcome remains highly uncertain.

Warsh has clearly signaled that he does not want to send a message that the fight against inflation has been won. The question is whether one good inflation print is enough to keep him on hold – or whether geopolitical turmoil and commodity prices will once again hand him the arguments he is looking for.

Sources: Nasdaq Markets, Bureau of Labor Statistics, FOREX.com (Matt Weller), Empower Investment (Marta Norton)