May Inflation Nowcast at 4.18% Heightens S&P 500 Volatility Risks

The S&P 500 holds near record highs at 7,473.47 as new Fed Chair Kevin Warsh confronts accelerating inflation. Early transition concerns over Warsh’s $100 million asset sales and hawkish reform agenda have eased with Jerome Powell’s retention on the Board through 2028. However, two Trump-driven shocks—broad tariffs and military action closing the Strait of Hormuz—have lifted the Cleveland Fed’s May TTM inflation nowcast to 4.18%, up 178 basis points since February. Markets now price a 43% chance of a rate hike by December, shifting focus from policy surprises at Warsh’s June 17 FOMC debut to the risk of higher-for-longer rates pressuring elevated valuations.