Early test for Kevin Warsh: What the strong jobs report mean for Fed policy

• Strong May jobs report (172,000 new jobs) has raised the probability of a Fed rate hike by year-end to 70% (up from 44% pre-report).
• There's now a 52% chance of a second rate hike by June next year, reflecting increased inflation concerns.
• Kevin Warsh's view on inflation, which attributes it to loose Fed policy and government spending rather than strong job growth, is being tested by the current economic data.
• Higher rates make debt servicing more expensive, and deglobalization could further impact financial flows and inflation globally.

A strong May jobs report has significantly increased the market's expectation for Fed rate hikes, with probabilities for a hike by year-end jumping from 44% to 70%. This challenges the Federal Reserve's policy decisions and tests new ideas from potential Fed Chair Kevin Warsh regarding the drivers of inflation. The discussion also touches on the impact of higher rates on debt servicing and the role of deglobalization.