Why this former contender for the Fed chair job thinks Kevin Warsh has a huge problem on his hands

Why this former contender for the Fed chair job thinks Kevin Warsh has a huge problem on his hands

Brian Sozzi · Executive Editor

Fri, September 18, 2026 at 8:16 AM GMT+3 3 min read

• BLK +1.50%

Former recent Federal Reserve chair contender and BlackRock chief investment officer of fixed income Rick Rieder thinks the guy who ultimately got the gig — Kevin Warsh — has one big challenge on his hands.

That is, a rate hike won't necessarily bring down the cost of things for households.

"What is difficult concerning inflation today, based on the San Francisco Fed's analysis, is that the cyclical parts of inflation are generally well behaved, yet it is the acyclical parts of inflation that are difficult to contain, and tend to resist movements in interest rates," Rieder wrote in a new note. "Clearly, energy, insurance, healthcare, and education are facing and passing through higher costs today. The Fed's challenge is combating that with their toolkit."

"Yet, moving the interest rate today to a marginally more restrictive rate is the Fed's directive toward addressing the fact that inflation is too high relative to target," Rieder added, "and inaction would not be the preferred route going forward."

The Fed's decision to lift rates on Wednesday comes as sticky inflation readings and rising energy costs force central bankers back into tightening mode. The rate hike marks the central bank's first interest rate increase since July 2023.

Investors are also focused on the updated economic projections and the Fed's "dot plot" to gauge future rate moves, and the dot plot didn't rule out one more hike this year.

A hawkish dot plot and follow-up commentary from Fed Chairman Kevin Warsh during his presser stand to further elevate borrowing costs and pressure stocks initially around the world.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

The Dow Jones Industrial Average (^DJI) dropped 631.21 points yesterday as investors digested the rate hike news.

"I don't actually think a Fed hike is going to necessarily solve the problem," Robinhood Markets chief investment officer Stephanie Guild said on Yahoo Finance's Opening Bid. "While the market can certainly absorb 25 basis points or, you know, the 50 basis points that it's pricing in for this year, I don't actually think that to me is putting a solution to a different problem."

Guild explained, "I think what we have here is we have high demand for money, and we have a high need for energy. But the supply of it is waning. … So you have these things that fuel the economy. They're kind of causing a lot of friction now. And I'm not sure a rate hike is actually going to solve that. And so I do think for investors, you have to make sure you have hedges for these kinds of things in your portfolio."

The S&P 500 (^GSPC) has declined by an average of 4% over the six weeks following the first Fed rate hike of a cycle across seven such episodes since 1988, per analysis from strategists at The Kobeissi Letter.

Stocks recovered all of those losses over the next five to six weeks on average.

In the six months following the first interest rate hike, the S&P 500 returned 4% on average. After 12 months, the S&P 500's average gain tallied 9%. Positive returns have occurred in every episode except 2022 over the 12 months.

Correction: An earlier version of this story has been updated after the source clarified that they meant to use the word "acyclical" instead of "cyclical."

Brian Sozzi is Yahoo Finance's Executive Editor, host of the 'Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

Read the latest financial and business news from Yahoo Finance