The Federal Reserve has a new chair. The Senate confirmed Kevin Warsh on Wednesday in a 54-45 vote, the closest confirmation in the modern era and the most partisan in the institution's history. Warsh formally succeeds Jerome Powell, whose eight-year term expires Friday. Markets have broadly welcomed the transition: Warsh has publicly argued there is room to lower rates, but the data landing this week tells a more complicated story.
Inflation Refuses to Cooperate
April's Producer Price Index, released Wednesday, came in far hotter than expected. Headline PPI rose 1.4% month-over-month, the largest single-month increase since March 2022, against a consensus forecast of around 0.5%. Core PPI which strips out food and energy, rose 1.0%, also well above the 0.3% expected. The result sent the 10-year Treasury yield briefly to 4.48%, matching its year-to-date high, and wiped out any residual expectations of a rate cut in 2026. The PPI measures what producers receive for their output, so a print this hot signals that consumer-facing inflation is likely to follow in the months ahead.
Warsh inherits the central bank at precisely the moment when the war with Iran and elevated energy prices are making the Fed's dual mandate increasingly difficult to navigate. His first FOMC meeting as chair is scheduled for June 16-17, and the rate path he ultimately charts will have far more market impact than the confirmation vote itself.
Equities Hold Their Ground
Despite the inflation shock, equities proved surprisingly resilient. The S&P 500 and Nasdaq Composite both closed at fresh all-time highs on Wednesday, with the latter up 1.2% on the session. The divergence from rising yields is notable, technology and semiconductor names drove the move, partly on the back of Nvidia CEO joining President Trump at the Beijing summit with Chinese President Xi Jinping. Nvidia in particular remains a market leader, with multiple analysts reiterating outperform ratings ahead of the company's earnings next week.
The S&P 500 is pointing modestly higher Thursday morning. The market seems to be threading a needle: pricing in AI-driven earnings growth while setting aside, for now, the implications of the PPI print.
Tokyo Extends, Yen Firms
Japan's Nikkei 225 is trading around 63,272 Thursday, building on last week's ATH run. The index has risen more than 12% over the past month, catching up with moves already established in the S&P 500 and Nasdaq. USD/JPY sits near 155-156, with the yen having gradually firmed as peace diplomacy around the Strait of Hormuz creates a slightly less risk-elevated backdrop. That said, the pair remains sensitive to any renewed escalation, and intervention risk persists above the 158 handle.
Oil: Stuck in the Premium
Despite diplomatic momentum, Brent crude remains elevated near $105, with WTI above $101. The IEA's May Oil Market Report quantifies the scale of the problem: over 14 million barrels per day remain shut in from Gulf producers affected by the Hormuz closure, and observed global inventories have drawn down by 250 million barrels over March and April alone. Until a deal is actually signed, the energy inflation premium stays embedded, and so does the pressure on Warsh's Federal Reserve to choose between growth and price stability.