"I think you're going to see a hawkish shift in the dot plot," Patricia Zobel, head of Macroeconomic Research and Market Strategy at Guggenheim Investments, told Yahoo Finance. "You're going to see several participants who have rate hikes as a base case this year, some possibly with two rate hikes this year as a modal case."

Multiple Fed insiders expect the committee to drop language signaling a future rate cut from its statement. It may be replaced by language signaling that cuts or hikes are possible, or the forward-looking statement may be removed altogether.

Stephen Brown, chief economist for North America at Capital Economics, speculated that Warsh won't put forth his own interest rate projection. But he'll still be asked about his views during his press conference.

"The risk for markets is that Warsh will sound more hawkish than expected, either due to a miscommunication or simply because his views are now less dovish than when he was seeking President Trump's nomination," said Brown.

But if Warsh feels beholden to Trump, an overtly dovish tone would reignite concerns about Fed independence and risk pushing up long-end bond yields, Brown warned.

Brown said two "insurance hikes" are now more likely than not in December and early next year.

George said there's a good argument to raise rates. The question will be whether the surge in oil prices or tariffs, both of which the Fed has considered temporary, will be viewed as more persistent. She also noted that the One Big Beautiful Bill and deregulation are juicing the economy and demand.

"I think there'll be a strong desire, maybe even inertia, to say, let's not move until we see whether that's likely. But this is the tale of past inflationary cycles; you want to wait for more information before you move. I hope they will say out loud that they are willing to make an increase in interest rates if this inflation persists."

On the other hand, Luke Tilley, chief economist for Wilmington Trust, projects rate cuts toward the end of 2026 and into 2027. Per Tilley, headline inflation will decelerate but remain at elevated levels into early 2027, while core inflation will slow more substantially. That number will move close to the Fed's target toward the end of the year, Tilley said.

"I think by the time you get through the summer, we'll see that energy prices have not gone through to core inflation, and that inflation is not really a threat," he said. "We think that the Fed will see the direction of travel in inflation and lack of core [inflation] pressure and reduce rates again late this year."

Tilley says the deal that opens the Strait will likely bring down energy prices in the near term. Though it would still take many weeks, or possibly a few months, for activity to return to normal.

"We could be looking at an inflation outlook with most factors pushing to the downside, including: energy declining, tariffs, stagnant home prices, and weak consumer spending," said Tilley. "The only inflationary forces left would be rising metals prices due to tariffs, and the AI impact on computer equipment."

Patrick Harker, former president of the Philadelphia Fed and professor at the Wharton School of the University of Pennsylvania, said even if the war ends, it's going to take time for inflation to come down.

"Even if we get back to what it was before the war, we still had inflation running above 2%," Harker said. "Everybody forgets that we were still not at target … The issues that were creating inflation above 2% before the war are still there."

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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