Markets Push US Rates to Highest Since War Ahead of Warsh’s FOMC

US interest rates climbed to their highest levels since the onset of the war after recent data showed faster increases in import and producer prices. Import prices recorded their fastest monthly rise in four years and the Producer Price Index posted a 6.4% year-over-year increase.

Yields moved beyond the tight range that followed the initial conflict-related shock. Earlier declines tied to a temporary ceasefire have largely reversed, and Treasury yields have retraced to higher levels seen since the conflict began. Economic indicators show growth remaining resilient despite disruption to energy supplies.

Market pricing has shifted to reflect a more persistent inflation profile. Investors are attaching roughly a one-hike probability by March 2027 to the path of policy rates. Credit spreads remain near some of the tightest levels of the year, indicating continued investor confidence in corporate balance sheets even as yields rise.

Negotiations to reopen the Strait of Hormuz have shown little progress, and restrictions on the shipping lane are adding to input costs for US businesses. The Strait handles a large share of global oil shipments; the ongoing limitation on flows has contributed to higher energy and import prices that feed into wholesale and consumer costs.

Kevin Warsh, newly confirmed as Federal Reserve chair, will preside over his first Federal Open Market Committee meeting in June. He inherits a committee with differing views and faces recent inflation readings that have accelerated since earlier in the year. Market participants expect the Fed’s updated projections, including the median dot plot, to reflect current pricing.

Investors and policymakers will focus on Warsh’s public remarks and the FOMC economic projections for signals on the policy path. Incoming economic releases and developments around supply disruptions will continue to influence inflation measures and financial market moves.