As Warsh leads his first policy meeting as Fed chairman this week, he is not getting the luxury of starting the job in "easy" mode.

The big picture: He faces a renewed surge of inflation, a restive wing of monetary hawks on the policy committee and big questions around how he will operationalize the major changes he advocates in how the Fed works.

• Even if the policy outcome — no change to rates — looks preordained, the messaging would be tricky in any circumstance.
• Coming as the first substantive public communications as Fed chairman adds to the possibility for confusion, as Warsh finds his sea legs in the press conference format and markets learn how to interpret his words.

State of play: Even putting aside the effects of the Iran war on energy prices, core inflation has been surging so far this year. That puts in doubt the interest rate cuts that Fed officials penciled in to their last projections, released in March — and has some officials (and market-based forecasts) looking to raise rates.

• Warsh's stated policy views would seem to pull him in opposite directions.
• He has historically been a monetary hawk, and said in his confirmation hearing that "inflation is a choice, and the Fed must take responsibility for it" and do so "without excuse or equivocation, argument or anguish."
• He has also argued that the AI boom and supply-side policies of the Trump administration will enable non-inflationary growth, making an intellectual case for the rate cuts desired by the president who appointed him.

Zoom out: The questions Warsh faced at his April confirmation hearing didn't really zero in on the near-term policy direction, and the economic backdrop has shifted since then anyway.

• So this will be his first opportunity to guide financial markets on which of those concepts prevail in his thinking.

Zoom in: Warsh will surely face questions about the quarterly economic and policy projections from participants on the policy committee — a practice that he himself has sharply criticized, arguing that it makes officials too reluctant to pivot policy based on incoming evidence.

• It will be unsurprising if he plays down the importance of those projections even more than his predecessor, Jerome Powell, did.
• Still, Fed watchers the world over won't be able to help but scrutinize the "dot plot" to see how many officials now anticipate raising rates this year and how many continue envisioning rate cuts.

Between the lines: One option the committee has in reshaping its statement is to eliminate language implying that the next policy move will be a rate cut, without replacing it with language pointing to a rate increase.

• That may satisfy the three hawkish dissenters who objected to that language six weeks ago while also aligning with Warsh's stated desire to get the Fed out of the business of giving detailed forward guidance.

What they're saying: "We expect the press conference to be pivotal," UBS economists led by Jonathan Pingle wrote in a note.

• "We do not really know what his policy views are. We also do not know what kind of communications he will pursue," they added. "His testimony was relatively general, and at times somewhat non-committal outside of references to AI."

Of note: We'll also be on the lookout for early signs that Warsh is changing the details of how the Fed communicates.

• Changing the formal process of projections is a committee decision, but adjustments to other communications — the length and tone of the press conference, for example — he can make unilaterally.
• In his confirmation hearing, he seemed wary of the Fed communicating too much. Powell conducted a roughly 50-minute press conference after each policy meeting, eight times a year.

The bottom line: It's early days in the Warsh Fed, but all eyes will be on him both to glean his latest policy instincts and what this leadership transition will mean for the institution.

The prospect of a reopened Strait of Hormuz and a pending U.S.-Iran peace deal could help ease the big inflation risk hanging over the Fed meeting.

• "Ships are starting to move, many loaded up with Oil, out of the Strait of Hormuz," President Trump said in a post on Truth Social this morning.

Friction point: Lingering disruptions to shipments of oil, fertilizer and other industrial inputs could keep inflation concerns alive at the Fed.

What they're saying: "Sailing through the strait will remain riskier and more costly than before the war," Oxford Economics' Ben May wrote in a note this morning.

• May noted that damage from underwater mines or a sudden re-escalation of the conflict will keep insurance coverage for the strait higher than pre-war levels.
• Reuters reported this morning that ensuring the strait is safe from mines could take weeks.
• "Physical flows are still likely to recover gradually rather than immediately, even if prices respond more quickly to signs that a credible reopening deal is in place," May wrote.

The bottom line: The peace deal might reduce geopolitical risk, though the effects on global supply chains might come more slowly.