Federal Reserve Chair nominee Kevin Warsh will likely struggle to deliver the aggressive interest rate cuts demanded by President Donald Trump, as surging oil prices and persistent inflation constrain the central bank’s room for maneuver, according to the latest CNBC Fed Survey.

Respondents to the survey, which includes some of Wall Street’s most closely watched economists and strategists, showed markedly reduced expectations for monetary easing. On average, they forecast the federal funds rate will end this year at just 3.5% — only 0.14 percentage points below current levels. Just 58% of the 26 respondents expect a rate cut in 2026.

For 2027, the forecast points to a more modest easing, with the funds rate seen settling around 3.2%, implying fewer than two quarter-point cuts over the next two years. Business leaders believe the current crisis in the Middle East has put the Warsh in a difficult position.

“Fed Chair Nominee Warsh will probably be hamstrung delivering Trump the rate cuts the president wants because oil prices and inflation will remain higher than hoped for a long time,” said Rob Morgan, senior vice president and market strategist at MOSAIC.

The Iran conflict and the prolonged closure of the Strait of Hormuz have dramatically altered the economic backdrop. Survey participants now expect high crude prices to add 0.6 percentage points to inflation this year while shaving half a point off GDP growth. Notably, 81% believe the energy shock will also push up core inflation, which strips out volatile food and energy prices, making the Fed’s job significantly harder.

Inflation forecasts have been revised higher. The consumer price index is now expected to average 3.1% this year, up sharply from 2.7% in the previous survey. While CPI is seen moderating to 2.6% in 2027, the damage to near-term expectations is clear.

Despite the inflation bump, a majority (69%) still believe the Fed will look through the energy-driven spike and refrain from raising rates. However, Diane Swonk, chief economist at KPMG, argued the central bank needs to shift its messaging.

“The Fed needs to signal optionality on its next move in rates — it could be up instead of down,” she said.

Growth expectations have also deteriorated. GDP is now forecast to expand just 1.9% this year, down half a percentage point from January’s pre-war projection, with only a modest rebound to 2.1% expected in 2027. The unemployment rate is projected to rise modestly to 4.5% from the current 4.3% and hover there through next year. Economists now estimate the economy needs only about 62,000 jobs per month to hold the unemployment rate steady.

The probability of a recession remains elevated at 33%, little changed from the March survey. Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, captured the prevailing mood, noting: “The war and its commodity and supply chain impact have left the Fed as just a spectator. I expect to hear from Powell’s presser a lot of ‘we’ll have to see.’”

Equity market expectations reflect the sober outlook. The S&P 500 is forecast to remain largely stagnant around current levels for the rest of this year before rising more meaningfully to around 7,700 in 2027.

Douglas Gordon of Russell Investments summed up the challenge facing both the current Fed leadership and its incoming chairman: “U.S. economic resilience, sticky inflation, and ongoing uncertainty argue against rate cuts, irrespective of who is chairing the Federal Open Market Committee.”

The survey paints a clear picture that even if Kevin Warsh is confirmed as the next Fed Chair, the combination of geopolitically driven energy costs and stubborn underlying inflation is likely to keep monetary policy tighter for longer than the White House would like.

Google has quietly reached an agreement with the Pentagon to make its artificial intelligence models available for classified government work, the latest sign of how deeply Silicon Valley is becoming intertwined with U.S. national security.

According to The Information, the deal allows the Defense Department, recently renamed the Department of War by President Donald Trump, to use Google’s AI systems for “any lawful government purpose.” This puts Google alongside OpenAI and Elon Musk’s xAI, both of which have already secured similar arrangements.

The contracts, part of a broader 2025 push, are reportedly worth up to $200 million apiece with leading AI labs including Anthropic, OpenAI, and now Google.

The Pentagon has been actively pressing top AI companies to provide their most advanced models on classified networks with fewer restrictions than they typically impose on commercial customers. These systems are used for highly sensitive tasks, ranging from mission planning to weapons targeting.

Under the agreement, Google will be required to assist the government in adjusting the company’s AI safety settings and content filters when requested. The contract includes explicit language stating that the AI “is not intended for, and should not be used for, domestic mass surveillance or autonomous weapons (including target selection) without appropriate human oversight and control.”

However, the deal also makes clear that Google has no right to control or veto lawful operational decisions once the technology is in the Pentagon’s hands. That carve-out exposes the limits of private-sector influence when working with the military, which has fueled concern over growing deals between the Pentagon and AI companies for the use of advanced models.

Google defended the partnership in carefully worded terms. A company spokesperson told Reuters that Google supports government agencies on both classified and unclassified projects and remains committed to the industry consensus that AI should not be used for domestic mass surveillance or autonomous weaponry without meaningful human oversight.

“We believe that providing API access to our commercial models, including on Google infrastructure, with industry-standard practices and terms, represents a responsible approach to supporting national security,” the spokesperson said.

The Pentagon has consistently said it has no interest in using AI for mass surveillance of Americans or for fully autonomous lethal weapons, but it wants maximum flexibility for any lawful application.

The agreement marks a notable evolution for Google, which has historically been cautious about deep military involvement, most famously pulling back from Project Maven several years ago after internal employee protests. Its willingness to now sign on with fewer restrictions than some rivals signals a pragmatic shift as the race to deploy advanced AI in defense intensifies.

The move follows an ongoing fallout between Anthropic and the Pentagon. Earlier this year, Anthropic clashed with the Pentagon after refusing to remove guardrails designed to prevent its Claude models from being used in autonomous weapons or domestic surveillance. The standoff led the Defense Department to designate Anthropic a “supply-chain risk,” a serious blow for the startup.

By contrast, Google, OpenAI, and xAI appear more willing to accommodate the Pentagon’s desire for broader access in exchange for access to major government contracts and strategic relevance.

However, this latest development indicates that artificial intelligence has moved from a commercial curiosity to a core asset in great-power competition. As the U.S. seeks to maintain its technological edge, particularly against China, the Pentagon is determined to harness the most powerful commercial AI models rather than relying solely on slower, in-house development.

While the deal offers significant revenue potential and strengthens Google’s position in the rapidly expanding government AI market, it also carries risks, from potential employee backlash and reputational concerns to future ethical and regulatory scrutiny over how the technology is ultimately deployed.

As more AI companies embed themselves in the national security apparatus, the line between Silicon Valley innovation and military application continues to blur. The concern, thus, remains whether these carefully negotiated guardrails will hold in practice once the models are integrated into real-world classified operations.