I think "the proof of the pudding is in the eating". When he votes to raise rates in open defiance of Trump's view, then - and only then - will I think he has anything to applaud.
In order to get the job he had to be willing to lie to Trump and say he believe that rates should be lowered. He would also claim that as Chair he would be doing everything he could to lower rates and help Trump. So we know he is willing to lie in order to get the job.
We also know he is a partisan. There is a clear history of him being a hawk on inflation when a democrat is in the White House - and not so much when a Republican is President. So he is a lying right wing partisan.
However, at this point he is safe in his position with little to no chance that Trump would be able to get rid of him. So he will likely be on the dovish side as long as Trump is President and turn into a flame throwing Hawk if a democrat takes office.
The good news is that he is not like a Hegseth or Kennedy. He actually has some pretty good ideas of the basics of the Fed mandate and what drives the two parameters of focus. He also knows what tools are available and how to deploy them to bend each parameter. So he may drive the car into the right or the left ditch - but not over a cliff.
Well, that would be one way to quickly reestablish some credibility. Might there be others? Seriously, if inflation does calm down over the next few months, he might have missed this opportunity. It could come back to hurt him a lot if the next tightening (just as a thought experiment) happened under a future Democratic President.
Claudia, thanks for your solid analysis. I wonder, though, if holding the Fed responsible for the extended period of above-target inflation, as Chair Walsh and many others do, is too simplistic. For at least some of the last 5.5 years, the Committee could have run a notably tighter monetary policy that would likely have brought inflation down more quickly. In my view, such tighter policy would have had adverse implications for the real economy. Given that the labor market and GDP look solid but not spectacular, and that there have been protracted negative supply shocks, I think policy tight enough to bring inflation down would most likely caused a recession. Indeed, I learned in school and in practice that monetary policy in the face of supply shocks is extraordinarily difficult.
Could the Committee have done better? Yes. But using monetary policy (i.e. demand management) more robustly would not have produced unambiguously better outcomes. There really is more than enough blame for persistently high inflation to go around: fiscal policy seems to have overshot, supply-chain issues were powerful inflationary factors, and more recently tariffs and immigration policy have contributed to still-elevated inflation. Moreover, immigration policy in particular has complicated interpretation of the unemployment and payroll employment data.
And, unlike the 1970s, inflation expectations remained fairly well anchored even with accomodative policy. I think that this suggests that the policy mistakes were not as bad as others have argued. It was incorrect, but not crazy, to believe that high inflation would prove to be very transitory.
I wish that the chair and other influential people would recognize that recent inflation cannot be explained by uncomplicated answers.
Charles, I completely agree that the 65 months collapses the story of inflation. The chart I added to his speech shows that inflation had narrowed considerably after the pandemic surge and then broadened out again in the past two years with tariffs, war, and the AI buildout. Naming the drivers of inflation is more informative for policy than counting the months. On accountability, the time above target is the time above target but your question is the right one: what was the tradeoff. Even with the benefit of hindsight that's a tough call. I will be writing more about the inflation outlook--I let Warsh speak for himself today. My Bloomberg interview before his speech drew attention to the outlook. I am less confident in the waning effects of tariffs, energy, and AI than even a month ago. https://www.bloomberg.com/news/videos/2026-08-28/it-s-probably-time-for-the-fed-to-do-more-claudia-sahm-video
Thanks for another clear summary! Not to mention sharing Puffi’s expertise. “The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs.” I disagree. The Fed does not have full control of overall prices, especially on the supply side. I continue to believe (and the data on corporate profits supports) that the failure of antitrust enforcement has been a major factor in rising prices over the past five years. Not to mention the war!
This. The entire premise that the Fed controls much of anything other than the short term price of money (absent outright intervention further out the curve, which it IS capable of doing, but for a variety of reasons has an institutional aversion to absent outright crises) is a charade which (like the canard of central bank “independence”) is itself part of the problem.
But I and those few like me who share this opinion have been wholly unsuccessful in making any progress whatsoever in the broader public discourse, so I expect more of the same misguided nonsense both in the setting of monetary policy and discussions over the same … 😑
I'm flabbergasted. I must confess I wasn't expecting Warsh to be this open. Of course, I remain skeptical, he is after all appointed by TrumPox, but who knows?
Such a great synopsis, as usual! Another exceptionally well-written piece, Claudia. What struck me most is the distinction you draw (implicitly but importantly) between the substance of monetary policy and the institutional process by which credibility is earned. Warsh’s Jackson Hole speech seems less significant for signaling a particular September decision than for establishing a recognizable reaction function: define the target clearly, acknowledge uncertainty, marshal the data, and leave the Committee room to deliberate.
There is also an interesting tension in his preference for a “quieter” Fed. Less forward guidance can preserve optionality, but it places an even greater burden on the Chair to make the framework itself intelligible. In that sense, the move from 30,000-foot rhetoric to a granular discussion of inflation breadth may matter as much for credibility as whatever vote ultimately follows. A strong observation on the difference between sounding like a Fed Chair and beginning to govern like one.
I'm grateful for your summary and even-handed assessment of Warsh's latest public performance, but I'm reminded by many of the comments above (and your prior analyses) that we won't know what Warsh will really do unless and until Trump starts pressing him hard to persuade the Fed to lower rates, even where inflation data and trends suggest holding them steady or increasing them. I think we're all empiricists here, and we want to see what Warsh does, rather than rely exclusively on what he says.
Monopolies, tariffs and the war: that all three factors are ingredient in inflation seems clear. So is the deportation policy and practice (ICE). But these seem outside the Fed's purview. While raising interest rates may be necessary to stem inflation, would it be sufficient? What other measures would need to be taken?
I always look forward to receiving your wonderfully insightful analysis. But I wonder, what significant economic reports, reports that might effect the FOMC's thinking, are due between now and the mid-September meeting?
The two most important are the August employment report this Friday and the August CPI next week. The headlines on the war, tariffs, and AI buildout could also help shape the inflation outlook.
Did Warsh happen to whisper the word “tariff”? Commodity prices and imputed housing costs both hint at softwood lumber, and wait-and-see seems to telegraph an open question at the Fed, whether it regards tariffs as a one-off cost pressure or something more akin to an all-day plane crash.
How does all this square with the reality that my neighbors are wary of economic prospects and would not at all be surprised to find us in a recession soon? All this "trust me, I am the economist expert" material goes only so far, when the captain of the larger ship is an agent of chaos. People are not stupid, and they see how Congress is useless. They see how tax policy is a mess, and they fully realize that through tax avoidance, very wealthy people are not paying their share. TANSTAAFL
Kevin Warsh is like any other Trump syncophant. He has promised Trump he will lower rates. The time will come soon when he votes, to your great surprise, to lower or not raise rates when the data make clear he should do the opposite. The lack of forward guidance is to try and hide that that's what's coming. His actions will prove what he is really after.
Sounding like a Fed Chair is the surface🌊. The more important shift is that Warsh made the reaction function ⚙️ visible without giving the market a rate path 🛣️: what he considers temporary😲, what he considers persistent🤔 and what would force the Fed to move.🤠
(Don't judge me: LinkedIn is literally the only place I play it cool without emojis. We're among real humans here, so let a guy have some fun!)
I think "the proof of the pudding is in the eating". When he votes to raise rates in open defiance of Trump's view, then - and only then - will I think he has anything to applaud.
In order to get the job he had to be willing to lie to Trump and say he believe that rates should be lowered. He would also claim that as Chair he would be doing everything he could to lower rates and help Trump. So we know he is willing to lie in order to get the job.
We also know he is a partisan. There is a clear history of him being a hawk on inflation when a democrat is in the White House - and not so much when a Republican is President. So he is a lying right wing partisan.
However, at this point he is safe in his position with little to no chance that Trump would be able to get rid of him. So he will likely be on the dovish side as long as Trump is President and turn into a flame throwing Hawk if a democrat takes office.
The good news is that he is not like a Hegseth or Kennedy. He actually has some pretty good ideas of the basics of the Fed mandate and what drives the two parameters of focus. He also knows what tools are available and how to deploy them to bend each parameter. So he may drive the car into the right or the left ditch - but not over a cliff.
I applaud policy actions only after the results are in- maybe in 2028
Well, that would be one way to quickly reestablish some credibility. Might there be others? Seriously, if inflation does calm down over the next few months, he might have missed this opportunity. It could come back to hurt him a lot if the next tightening (just as a thought experiment) happened under a future Democratic President.
Claudia, thanks for your solid analysis. I wonder, though, if holding the Fed responsible for the extended period of above-target inflation, as Chair Walsh and many others do, is too simplistic. For at least some of the last 5.5 years, the Committee could have run a notably tighter monetary policy that would likely have brought inflation down more quickly. In my view, such tighter policy would have had adverse implications for the real economy. Given that the labor market and GDP look solid but not spectacular, and that there have been protracted negative supply shocks, I think policy tight enough to bring inflation down would most likely caused a recession. Indeed, I learned in school and in practice that monetary policy in the face of supply shocks is extraordinarily difficult.
Could the Committee have done better? Yes. But using monetary policy (i.e. demand management) more robustly would not have produced unambiguously better outcomes. There really is more than enough blame for persistently high inflation to go around: fiscal policy seems to have overshot, supply-chain issues were powerful inflationary factors, and more recently tariffs and immigration policy have contributed to still-elevated inflation. Moreover, immigration policy in particular has complicated interpretation of the unemployment and payroll employment data.
And, unlike the 1970s, inflation expectations remained fairly well anchored even with accomodative policy. I think that this suggests that the policy mistakes were not as bad as others have argued. It was incorrect, but not crazy, to believe that high inflation would prove to be very transitory.
I wish that the chair and other influential people would recognize that recent inflation cannot be explained by uncomplicated answers.
Charles, I completely agree that the 65 months collapses the story of inflation. The chart I added to his speech shows that inflation had narrowed considerably after the pandemic surge and then broadened out again in the past two years with tariffs, war, and the AI buildout. Naming the drivers of inflation is more informative for policy than counting the months. On accountability, the time above target is the time above target but your question is the right one: what was the tradeoff. Even with the benefit of hindsight that's a tough call. I will be writing more about the inflation outlook--I let Warsh speak for himself today. My Bloomberg interview before his speech drew attention to the outlook. I am less confident in the waning effects of tariffs, energy, and AI than even a month ago. https://www.bloomberg.com/news/videos/2026-08-28/it-s-probably-time-for-the-fed-to-do-more-claudia-sahm-video
Thanks for another clear summary! Not to mention sharing Puffi’s expertise. “The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs.” I disagree. The Fed does not have full control of overall prices, especially on the supply side. I continue to believe (and the data on corporate profits supports) that the failure of antitrust enforcement has been a major factor in rising prices over the past five years. Not to mention the war!
This. The entire premise that the Fed controls much of anything other than the short term price of money (absent outright intervention further out the curve, which it IS capable of doing, but for a variety of reasons has an institutional aversion to absent outright crises) is a charade which (like the canard of central bank “independence”) is itself part of the problem.
But I and those few like me who share this opinion have been wholly unsuccessful in making any progress whatsoever in the broader public discourse, so I expect more of the same misguided nonsense both in the setting of monetary policy and discussions over the same … 😑
Agreed!
Remaining skeptical, after all, this was only jawboning. But Warsh seems to have avoided Bessent's clumsy interventionism. So far.
I'm flabbergasted. I must confess I wasn't expecting Warsh to be this open. Of course, I remain skeptical, he is after all appointed by TrumPox, but who knows?
Such a great synopsis, as usual! Another exceptionally well-written piece, Claudia. What struck me most is the distinction you draw (implicitly but importantly) between the substance of monetary policy and the institutional process by which credibility is earned. Warsh’s Jackson Hole speech seems less significant for signaling a particular September decision than for establishing a recognizable reaction function: define the target clearly, acknowledge uncertainty, marshal the data, and leave the Committee room to deliberate.
There is also an interesting tension in his preference for a “quieter” Fed. Less forward guidance can preserve optionality, but it places an even greater burden on the Chair to make the framework itself intelligible. In that sense, the move from 30,000-foot rhetoric to a granular discussion of inflation breadth may matter as much for credibility as whatever vote ultimately follows. A strong observation on the difference between sounding like a Fed Chair and beginning to govern like one.
I'm grateful for your summary and even-handed assessment of Warsh's latest public performance, but I'm reminded by many of the comments above (and your prior analyses) that we won't know what Warsh will really do unless and until Trump starts pressing him hard to persuade the Fed to lower rates, even where inflation data and trends suggest holding them steady or increasing them. I think we're all empiricists here, and we want to see what Warsh does, rather than rely exclusively on what he says.
Monopolies, tariffs and the war: that all three factors are ingredient in inflation seems clear. So is the deportation policy and practice (ICE). But these seem outside the Fed's purview. While raising interest rates may be necessary to stem inflation, would it be sufficient? What other measures would need to be taken?
I always look forward to receiving your wonderfully insightful analysis. But I wonder, what significant economic reports, reports that might effect the FOMC's thinking, are due between now and the mid-September meeting?
The two most important are the August employment report this Friday and the August CPI next week. The headlines on the war, tariffs, and AI buildout could also help shape the inflation outlook.
Perfect. Thanks very much.
Did Warsh happen to whisper the word “tariff”? Commodity prices and imputed housing costs both hint at softwood lumber, and wait-and-see seems to telegraph an open question at the Fed, whether it regards tariffs as a one-off cost pressure or something more akin to an all-day plane crash.
How does all this square with the reality that my neighbors are wary of economic prospects and would not at all be surprised to find us in a recession soon? All this "trust me, I am the economist expert" material goes only so far, when the captain of the larger ship is an agent of chaos. People are not stupid, and they see how Congress is useless. They see how tax policy is a mess, and they fully realize that through tax avoidance, very wealthy people are not paying their share. TANSTAAFL
Kevin Warsh is like any other Trump syncophant. He has promised Trump he will lower rates. The time will come soon when he votes, to your great surprise, to lower or not raise rates when the data make clear he should do the opposite. The lack of forward guidance is to try and hide that that's what's coming. His actions will prove what he is really after.
Sounding like a Fed Chair is the surface🌊. The more important shift is that Warsh made the reaction function ⚙️ visible without giving the market a rate path 🛣️: what he considers temporary😲, what he considers persistent🤔 and what would force the Fed to move.🤠
(Don't judge me: LinkedIn is literally the only place I play it cool without emojis. We're among real humans here, so let a guy have some fun!)
He is really the Big Boss.
And even a Yield Curve FLATTENER :-]
https://substack.com/@alejandroscorpio/note/c-327100144?r=8mzfdf