For nearly six decades, every Federal Reserve chair has delivered a rate hike before cutting interest rates.

Kevin Warsh may be about to face the same test.

A surprisingly soft June inflation report all but erased expectations for a rate increase at the Fed's July 29 meeting.

CME FedWatch now assigns just a 14% probability of a July hike, while prediction market Polymarket places the odds even lower, around 6%.

Yet, investors haven't abandoned the tightening story.

Fed futures now imply roughly a 72% chance of a quarter-point hike by September and a 96% probability by October, suggesting markets still expect Warsh to preserve one of the Fed's longest-running traditions.

The real question isn't whether July is off the table. It's whether June's inflation surprise merely delayed the first hike of Warsh's tenure.

A Longstanding Fed Pattern Could Survive Under Warsh

Oxford Economics: June CPI May Already Be Outdated

Oxford Economics indicates investors may be reading too much into one benign inflation report.

Senior economist Bob Schwartz described June's CPI as "not only stale, it is rancid," noting that the report was driven largely by falling energy prices that have already reversed as oil rebounded following renewed Middle East tensions.

At the same time, Schwartz highlighted the underlying inflation trend continues to improve.

Shelter inflation is cooling, nearly half of CPI components declined in June, and core services inflation remains subdued, suggesting the broader disinflation story is still intact.

Bank of America Thinks Markets Are Too Dovish

Bank of America economist Aditya Bhave reaches almost the opposite conclusion.

Rather than abandoning his hawkish outlook after June's CPI, Bhave reaffirmed his call for three rate hikes in 2026.

"We see a strong case for 3 hikes in '26: underlying inflation remains elevated & 75bp might be needed to tighten conditions," Bhave said.

He argued that investors are underestimating persistent inflation.

"Some clients think the Fed shouldn't hike because inflation is being driven by one-offs. Per our math, however, underlying inflation is well above target," Bhave said.

Bhave also believes Warsh has institutional incentives to act.

"We think he has strategic reasons to hike soon: he'd gain credibility without having to own the inflation problem," the economist wrote.