When Kevin Warsh was sworn in as chairman of the Federal Reserve, he touted a planned policy regime change for America’s central bank and pledged not to repeat past mistakes.
asserted
he → swear → mistakes
Four months-plus into his tenure, Warsh finds himself in the same boat as his predecessor: sticky inflation and the need for higher interest rates.
asserted
Warsh → find → rates
Warsh promised to be an independent leader, with high ethical standards, whom markets and the public could trust.
uncertain
markets → promise → whom
That included a willingness to resist persistent calls for lower interest rates by the president who appointed him, Donald Trump.
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who → include → him
“The president never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions,” testified Warsh before the Senate banking committee in April.
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Warsh → ask → April
Beyond interest rates, Warsh has already changed Fed business somewhat.
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Warsh → change → business
He is not participating in the Fed’s Summary of Economic Projections, in which participants predict future economic growth, unemployment, inflation, and policy rate paths.
asserted
participants → participate → growth
Warsh wants public speeches cut down so governors can do “more thinking, less talking.”
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governors → want → thinking
So far into Warsh’s tenure, though, he’s facing similar problems as his predecessor as Fed chairman, Jerome Powell.
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he → face → chairman
Inflation remains above the Fed’s 2% target.
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Inflation → remain → target
Warsh at the start of the summer declined to say whether rates should rise.
asserted
rates → decline → summer
After the Federal Open Market Committee voted to keep interest rates steady in July, Warsh promised to keep an eye on the markets and address price shocks when necessary.
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Warsh → vote → shocks
He was encouraged by job gains and the lower unemployment rate — despite higher inflation.
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He → encourage → inflation
In August, Warsh said the Fed’s focus should be on prices but did not endorse a rate hike.
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focus → say → hike
He indicated it was important to wait for more information before anything else.
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it → indicate → anything
The Bureau of Labor Statistics reported Sept. 11 that core inflation, all items minus food and energy, rose 2.4% from this time last year.
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inflation → report → time
Food prices rose 2.7%, and energy prices rose 16.3%.
asserted
prices → rise → ?
One week later, the FOMC raised interest rates by a quarter of a percentage point to 3.75%-4%.
asserted
FOMC → raise → %
“It’s defensible but late,” said Jai Kedia, an economist at the Cato Institute.
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Kedia → ’ → Institute
Kedia wasn’t surprised by the unanimous interest rate decision because the FOMC had been debating higher interest rates for months.
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FOMC → debate → months
He was curious why committee members waited so long to address inflation.
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members → wait → inflation
“It was much higher earlier this year when the Fed chose to do nothing,” he told the Washington Examiner.
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he → choose → Examiner
Iran war complicates interest rate debate
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war → complicate → debate
Earlier this year, the FOMC wrestled with lowering rates versus holding them steady despite higher prices.
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FOMC → wrestle → prices
As the Iran war continued — and central banks worldwide began raising rates — members began favoring a hike, with three members wanting a quarter-point hike.
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members → continue → hike
David Beckworth, a senior research fellow at the Mercatus Center at George Mason University, said the upward pressure is coming from persistent budget deficits and AI investment.
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pressure → say → deficits
“As we run these larger deficits, how do we finance them?” Beckworth asked the Washington Examiner.
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Beckworth → run → Examiner
“At some point, the Fed’s going to have to accommodate it.”
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Fed → go → it
He said artificial intelligence is helping the economy grow, but all that investment is also competing for workers, electricity, equipment, and capital, potentially pushing prices upward.
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investment → say → prices
That makes it easier for politicians to avoid discussing deficits, Beckworth said.
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Beckworth → make → deficits
“You can always point to something else because the world’s a complicated place with all these moving parts that affect interest rates,” he said.
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he → point → rates
“It’s challenging to kind of parse out everything.”
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It → ’ → everything
Beckworth said he supports the FOMC’s decision to raise rates to communicate credibility to the market and tackle inflation.
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he → say → inflation
That would allow the market to self-correct by cutting back on spending.
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market → allow → spending
That self-correction may not be the best decision for the U.S. economy, said Mark Zandi, chief economist at Moody’s Analytics.
uncertain
Zandi → say → Analytics
Zandi worried that raising rates too quickly would push growth down.
asserted
raising → worry → growth
“That is hard to do without layoffs, rising unemployment, and igniting a self-reinforcing negative cycle,” he wrote on LinkedIn.
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he → do → LinkedIn
“To hit its inflation objective, the Fed either needs to rein in the AI boom or put even more pressure on the rest of the economy.”
asserted
Fed → hit → economy
Trump still focused on slashing rates
Zandi argued it would be better to hold interest rates steady, blaming inflation on supply shocks from higher energy prices and tariffs.
President Donald Trump agrees.
Shortly after the Fed raised interest rates, Trump said it was unnecessary — citing investment coming into the United States.
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it → focus → States
“If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least 1.5 Trillion Dollars a year,” he wrote on Truth Social.
asserted
he → stop → Social
…and 18 more, not listed.
The Aporia
