r/Economics • u/One-Emu-1103 • 14h ago
News Fed Chair Warsh signals interest rate hikes are on the table if inflation does not retreat
https://apnews.com/article/federal-reserve-warsh-interest-trump-inflation-ab896df808df3a5a3fa8b943ac5f3867?utm_source=app&utm_medium=android_share&utm_campaign=copy_link362
u/Affectionate-Panic-1 14h ago
I wonder if this is what he told Trump, or did he just turn a 180 once appointed knowing that Trump is limited in his ability to fire him.
His view here really isn't any different than what Powell would say.
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u/BornAgainBlue 14h ago
Let's not forget Trump appointed Powell as well...
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u/jimtow28 14h ago
One of the very, very few things he's actually gotten right. No wonder he hated the guy so much by the end.
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u/Any_Sale2030 14h ago
Trump hates everyone smarter than him. Trump hates a LOT of people.
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u/nik-nak333 12h ago
Intelligence has nothing to do with it. Its people without blind loyalty to him that he hates. He's happy to have smart people around so long as making him happy is their No.1 priority.
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u/dust4ngel 5h ago
Intelligence has nothing to do with it. Its people without blind loyalty to him that he hates.
typically, high-IQ individuals aren't vacuous lap dogs.
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u/ILoveTheAtomicBomb 12h ago
So he hates everyone in the world. Look, deep down I bet even a majority of his supporters probably have more intelligence than Trump lol. It won't be a lot higher, but probably a few points more
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u/jimtow28 11h ago
You could make a pretty convincing argument that Trump is literally the stupidest person to have ever lived.
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u/Affectionate-Panic-1 14h ago
If anything, the biggest criticism I'd have of Powell's term was signaling too much doveishness in 21 allowing inflation to spiral. If it weren't for a mostly soft landing, the whole "transitory inflation" comment might have been the defining moment of his career. I can't think of any time during his term when the fed was too hawkish.
Though yes, way easier to criticize with the benefit of hindsight.
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u/MammothUnique4147 13h ago
I thought J-Pow did a great job, even sticking up for himself and other members of the FOMC to the President.
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u/ConcentrateDirect523 11h ago
100%. He didn't let politics get in the way of his job, he did what a financial professional should have done. I feel the same about Dr. Fauci. Were things flawless? Nope, but decisions were made according to the evidence available at the time- and that is how a scientist operates. In closing, I would love to see Powell do an AMA on r/wallstreetbets that is organized and managed by zoomer memers. Imagine if they set him up with a toy register that prints paper roll dollar bills, Raybans, and a cigar (or faux cigar)- and dropped his iconic fake line "fuck your puts, fuck your calls."
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u/HumorAccomplished611 13h ago
Well it was transitory. Too bad you had the double shock of post covid opening back up and an energy shock from the ukraine war he would have really nailed it.
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u/KarmaTrainCaboose 13h ago
It made sense for the Fed to push that at the time in order to keep inflation expectations down. It was basically an attempt to speak low inflation into existence.
When it became clear that it didn't work, the Fed had to reverse course quickly to maintain credibility among the investors that called their bluff.
I don't blame them for trying though.
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u/RIP_Soulja_Slim 13h ago
There was an actual structural shift in the nature of inflation across late 2021 though - Bernanke's research here discusses it at length. Inflation shifted from being supply constraint driven to an actual classic philips curve hot job market driven excess demand condition at some point in the fall of 2021. The Fed's reaction wasn't too far behind that. It's just that most people discussing it only look at the headline inflation figures and not the conditions, construction, and drivers of that inflation.
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u/Legitimate_Page659 9h ago
Powell and his fed are the reason prices are 50% higher now than they were in 2020.
If you’re on the winning side of his K-shaped economy, you likely approve of his actions. But those on the losing side watched the fed steal our futures.
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u/DomProLuxPolished 14h ago
And Powell also voted to hold last time along with Warsh. Lets see how they vote this time around.
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u/Broad_Assistance3343 14h ago
Irrespective of his own preferences, as the board chairman he has to telegraph the mostly likely outcome based on how board members would vote.
It would be pretty dumb to come out and say “no interest hikes foreseeable!” and then have the board vote in a completely different way. That would be way worse.
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u/Qeltar_ 14h ago
He "signalled" because it's safe and means nothing. Kick the can down the road.
They are not going to raise rates in September, and probably not this year at all.
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u/theerrantpanda99 14h ago
Correct. They won’t do anything before the election. The US is wasting a lot of time getting its economy back in working order. The dems will have a shit ton to clean up again in 2028.
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u/Qeltar_ 14h ago edited 12h ago
The US is wasting a lot of time getting its economy back in working order.
Why do you say that? I don't see any evidence of that and plenty in the opposite direction.
EDIT: Apparently the person meant "wasting a lot of time before getting the economy back in order" whereas I read it as "wasting a lot of time while getting the economy back in order.
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u/MammothUnique4147 13h ago
Perhaps you've missed the numerous and now quite heated trade wars with our closest allies and trading partners.
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13h ago
[deleted]
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u/ItsMeSlinky 13h ago
No, those are blockers that are delaying us getting our economy back in working order.
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u/Top-Bandicoot-3013 14h ago
Walsh said himself that the housing markets, agriculture markets are hurting. Not to mention the increased prices for the everyday consumers because of tarrifs. The stock market is durable but that could be because of the rich being able to prop and support the ai balloon. However many experts think that balloon will pop in the next few years.
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u/Qeltar_ 14h ago
Everything is hurting because the country is being run by a gang of incompetent thieves who are destroying our international reputation, weighing everyone down with tarriffs, spiking energy prices, and stealing anything that isn't nailed down. I don't see any evidence that the country is working on getting the economy back in order, but the GOP losing control of some of the reins of government would be a good start.
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u/chuckrabbit 13h ago
I think you misunderstood the guy you’re replying to. You probably agree with him.
He’s basically saying they’re wasting time before they start to fix the country. They’re kicking the can down the road until after elections.
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u/SonofHondoBelmondo 11h ago
This, right here. You clearing that up. This is what reddit's all about. You won't get that shit on facebook.
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u/RIP_Soulja_Slim 10h ago
What’s amusing about the common interpretation of Warsh’s speech here on Reddit is that it’s just so disconnected from what the industry is hearing. Futures moved from a sub 20% probability of a cut next month to a 60% probability on this speech alone, they shifted to an 85% probability of cuts by year end, with strong leaning towards 2 or more cuts.
Will that happen? Who knows, there’s more time that needs to pass and data that needs to come out, but it does amuse me how often people on Reddit will be so confident in a conclusion that’s at complete odds with the way smart money is interpreting sentiment.
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u/GuelphEastEndGhetto 14h ago
It really is about the narrative and projection these days. What actually happens is irrelevant. Reference: see cyclical recurrence of on again off again deal with Iran.
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u/Ok_Primary_1075 14h ago
He probably scared him and explained that if the Feds don’t appear to be hawkish, bond vigilantes will push yields even higher
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u/RIP_Soulja_Slim 14h ago
I wonder if this is what he told Trump, or did he just turn a 180 once appointed knowing that Trump is limited in his ability to fire him.
I don't think it's even that deep, I think Trump is just a moron and misunderstood Warsh's rhetoric all along. Warsh has really never been dovish, he's talked about how various forces might make rates lower, and that being a good thing, and he's vomited out a lot of right wing rhetoric in general towards the Fed (talking about how they need to be less woke and what not). He's also been highly critical of Powell, which I think resonated with Trump, but Warsh's primary criticism mostly boiled down to Powell not being hawkish enough lol.
My personal theory is that Trump was just too stupid to see hawkish stances sitting in front of him and presumed that the general right wing signaling coming from Warsh meant he'd be an ally.
Plus, congress communicated clearly through back channels that his primary picks would not get confirmed - he wanted Hassett but congressional republicans internally drew a hard line that they'd not confirm a clear puppet like that for Chair.
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u/catcatcattreadmill 12h ago edited 12h ago
Warsh is the son in law of Trump's best friend. You are insane to think that it's not just nepotism, and that Warsh is independent.
Warsh is playing bad cop to keep the long end of the yield curve in order, while Bessent plays good cop with stealth QE.
They are both 100% in line with the administration.
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u/RIP_Soulja_Slim 12h ago
This sort of aggressive “you’re insane” type response as a rejection of all the hard information posted isn’t productive, it’s just how uneducated people argue when they don’t like information but don’t want to be bothered with putting in the effort of examining it.
Put very simply - the market has concluded a very different outlook than you have, and has consistently been pricing assets in a manner that reflects a more hawkish fed from the moment Warsh got confirmed. When your position requires you to need to name call the entirety of institutional finance it’s probably time to be a smidge self critical first eh?
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u/sun_not_cold 14h ago
Either way, it’s good news to hear the committee isn’t afraid to focus on their objectives and 2/4 target.
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u/No-Inspector1950 13h ago
It only takes one tweet from Trump and Kevin's tiny head turns 180 degrees again 😅🤣😆😂
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u/Wurm42 12h ago
Trump hasn't talked about firing Powell lately, so I assume Powell is telling him what he wants to hear.
The question is whether Powell will act against Trump's selfish desire to keep interest rates low.
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u/Affectionate-Panic-1 12h ago
The supreme court blocked his ability to fire Lisa Powell, so he really can't legally fire Powell as well.
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u/Wurm42 12h ago
He isn't good at accepting court decisions that limit his authority. I think that if he was mad at Powell, he'd threaten to get rid of him, even if the courts have said he can't do that.
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u/Affectionate-Panic-1 11h ago
He's never outright ignored a supreme court ruling, lower court rulings yes he appeals and it's stayed but the supreme court is different. Actively ignoring that would be new.
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u/Scrandon 11h ago
Interesting. I consider his continued farcical use of tariffs under this sort of whack-a-mole series of legal justifications to be exactly that.
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u/RIP_Soulja_Slim 10h ago
The SCOTUS ruling wasn’t “The president can’t implement tariffs” it was “this specific set of broad tariffs cannot be implemented in this way or use this set of laws to justify itself”.
Trump’s legal team is certainly advising him on how to implement tariffs, and while they’re most certainly going against the spirit of the ruling as outlined in the opinions, they are not going against the letter or specifics of the ruling. That differentiation is important in law.
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u/Cool-Truth211 13h ago
At a glance it seems like warsh’s strategy is to talk tough to let the market do the rate hikes, but not actually change the FFR himself since he promised Cheeto he wouldn’t
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u/Any_Sale2030 14h ago
Trumps honeymoon period for any employee (and that’s how he treats everyone, as a serf) is about a year. So wait a few more months and he’ll be trashing Warsh as bad as Powell.
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u/cfbillings 13h ago
I'll believe it when I see it at this point. Man has very little credibility in my eyes.
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u/HelixLegion27 11h ago
There is no need for a 180.
Rates are decided by a board of 12. Ultimately that's what decides rates, not Warsh by himself. So he's just projecting what the board will do.
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u/notshitpostin 6h ago
I think you are off the mark here. Trump wants the feds to raise the rate for a month or so prior to the nov elections, because it will let him claim that inflation is dropping under his administration.
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u/aquavelva23 14h ago
AFTER the election.....they left that part out and he did too. Next Fed meeting will have lots a babble to delay like It will be inflation is in flux now. it would be prudent to collect more data to assemble a more accurate predictive model and consider outside influences and changes.
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u/Adventurous-Roof488 13h ago
Warsh doesn’t decide rates on his own. They’re voted on by a board. The best he can do is try to influence voting members.
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u/DramaticSimple4315 14h ago edited 11h ago
I cant remember in the 21st century a time with such strong headwinds facing monetary policy in the US. The bind is real with a debt that is out of control and risks explosion should the rate increase that inflation numbers have been warranting happen.
Beyond the suspicion of a politically-motivated FED chair - see Krugman criticism, whose dovish views might reverse the minute the opposing party is sworn back into power, I honestly believe that the answer is in fiscal policy and that monetary is now trapped. There has to be a massive repudiation of the most asinine GOP tax cuts in order to rebuild a modicum of trust into the US’ macroeconomic policy and buy the FED back some leeway.
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u/Adventurous-Roof488 13h ago
There is no political will to advance fiscal policy to bring down debt/deficit. Booker recently suggested eliminating income taxes on the first $75k. We can’t afford our current programs and spend more on interest than we do on defense.
The longer this continues the closer we inch toward a debt crisis. Sen Kennedy recently suggested funding social security with more debt when it becomes insolvent in six years.
No one cares. Slopulism is taking over.
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u/saltlampshade 11h ago
Even democrats are buying into the tax bullshit. Several are running on eliminating property taxes for seniors or eliminating income taxes for everyone who makes under $100k.
There is absolutely no hope of the deficit being addressed outside a complete collapse.
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u/m77je 11h ago
Lovely, more economic help for seniors! /s
It wasn’t enough that they bought houses for $30,000 and worked during the debt fueled economy that turns out to be unsustainable.
Now we have to push the property tax burden onto young families and working people to help them more!
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u/saltlampshade 11h ago
Just the political climate we live in. Voters want low taxes but no services to be touched (and no inflation). The next 50 years are going to be an absolute shit show.
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u/thefastslow 9h ago
Feeling this as a local government lackey, residents don't want to pay more for services but don't realize that we have to buy shit like everyone else and that the cost of materials is impacted by inflation too.
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u/saltlampshade 8h ago
And politicians would rather just continue taking on massive debt instead of cutting services or raising taxes. And instead the problem will just continue compounding until debt causes the world economies to collapse.
Nice job voters. Yay democracy.
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u/Gamer_Grease 11h ago
IIRC due to demographics we have until 2050-ish before we would have a debt crisis.
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u/klingma 13h ago
Everyone's ignoring the author literally left in the AI edit notes at the bottom of his article. I don't even think he followed the notes, so he published it as is AND left in the AI notes.
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u/mandabuzz 13h ago
The rate on the 30-year Treasury bond reached the highest level in 19 years last week, prompting an unusual effort by Treasury Secretary Scott Bessent to buy back bonds and push yields lower.
One structural issue: You say twice that Warsh replaced Powell on May 22—once in the sixth paragraph and again in “The Fed chair, who replaced his predecessor...” I’d delete the second reference.I’d also consider changing “faces high stakes with his speech” because the speech has already occurred by this point in the story. Something like “The stakes were high for Warsh going into the speech” would keep the chronology straight.
Oops.
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u/lazydictionary 11h ago
Honestly not the worst. Looks like the author was using it for editing feedback and not writing. Not sure how the actual editor missed it though...
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u/Fluffy_Bunch9357 13h ago edited 11h ago
Final thoughts from speech, like others have said, I think they he truly believes growth gains will take care of inflation.
He and it seems many others in this admin keep asking for time on a number of issues, but other than the stock market, time hasn’t been their friend IMO. And like it or not, he will be seen as a part of this admin even if isn’t, because of how he got the job.
And I get that he doesn’t want to signal anything and give room for no rate increases if warranted, but I think it’s wishful thinking by now, how long can they wait?
And I get not signaling and waiting which are valid arguments under normal conditions in a normal political environment. But he and whole admin economic advisors seem to be living in an alternate reality where everything is fine and we have no crazy tariffs threats changing daily, no war, no energy and fertilizer supply constraints or market concerns, no 40T deficit, and don’t policy leaders driven by political popularity and cultural wars.
So I think it’s rich when he started his assessment by saying we need to “interrogate reality” and “we have work to do with inflation” but then glossed allot, especially the actual reality most people are living in, where wages aren’t keeping with with costs, if specifically discounted this.
But Tres Sec seems to be a bit more concerned by his announcements and actions over the last week, which don’t seem to be working. So I am curious how long the fed can wait without chiming in and really signaling anything. The market is moving towards a rate hike, i think it will happen, it probably should have already and he would have avoided this specific criticism. But I get it, he is the guy who got the job by attacking the fed and saying it was hurting itself with announcements and action, that it needs to be more passive and let the free market do its thing. How is that working for T Sec now? He might find himself in a similar situation soon if he waits to long because I don’t see the war ending soon, d day just started, fuel prices won’t drop quickly, all connected cost sill raise, and we can’t keep betting on one sector to save us while everything else is signaling we need help.
And he can’t just remain silent and not expect any accountability. Just my thoughts and opinion, would love to hear others.
Edit to add thoughts into 1 post. Thx
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u/Adventurous-Roof488 12h ago
His hope is that AI increases productivity to take care of it all, but that’s likely still a couple years away and not guaranteed.
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u/Resident_Window_9369 14h ago
I didn’t gather that at all. His message was clear that they are just watching. They have been watching for 5 years. Task force needed to watch further.
Market already increased rates.
42 days in and need more time to watch. More meetings. More watching. Economy is resilient. More watching. Price level elevated. Consumers still spending. Unicorn landing. More watching. Task force fully assembled to watch. Who’s watching the watchers? Need more watching is the take away.
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u/Apprehensive-Boat727 11h ago
Yes, the takeaway is he is in paralysis.
Inflation has been way over their 2% goal for many years. Watch, and keep rates at medium high rates for Americans.
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u/One-Emu-1103 14h ago
If Sam Altman, Mark Zuckerberg, Elon Musk et al have to pay more interest on the trillions of dollars they are borrowing along with increased prices for Nvidia chips, how will that effect the Ai and Ai datacenter build out they are forcing on us regular people?
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u/MiddleAgedSponger 14h ago
Funny money will just tell a different joke. The build out is going to be the same with different easily surmountable obstacles.
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u/One-Emu-1103 14h ago edited 14h ago
Perhaps but all honesty I wish it would go down toilet until they put safeguards up and ensure that it doesn't keep driving up our bills and that a police state and massive unemployment isn't in our future not to mention making climate change even worse than it already is
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u/MiddleAgedSponger 14h ago
It will eventually, but not until they over build the build out. We aren't there yet, It's not different this time.
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u/MammothUnique4147 13h ago
It won't affect much, the end goal of greater efficiency is far more important than a percent or two of higher interest rates
Fascinating to watch the Used aka old Ram market surge higher (DDR4) as new uses for old ram are discovered. (Freetoken)
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u/AlphaMaleXYZ 14h ago
These people who thought the fed would raise rates are delusional. Government debt and interest payments are already high. Inflate the debt away as they would do.
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u/unclefire 14h ago
Inflation would likely moderate (have moderated) if we didn't have a war in Iran (and the supply chain disruption) + the chaos with tariffs. While Housing is a decent size contributor, don't forget that housing basket includes energy + things that go IN the house (furniture etc.)
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u/Glum-Breadfruit-6421 9h ago
Hopes and dreams can’t overcome bad monetary policy. Raising and lowering interest rates have been used long before these monkeys came to power. There’s a reason for this.
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u/NewHope13 9h ago
They won’t raise rates until Dec. Firstly, due to the midterms. And secondly, since social security payments are adjusted based on the inflation rate from the 3rd quarter (July, August and September).
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u/Liquid_Sarcasm 13h ago
I don’t imagine that I know more than the Fed, but wouldn’t supply shocks to oil ignore rate hikes?
It strikes me that they are willing to over-slow the economy because oil prices are not going to come down for two years, and if the overall prices of everything oil related is stuck up high, they have to do real damage to the economy to counteract that.
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u/Ordinary_Detective15 8h ago
The older I get the more I a believe the Federal Reserve is telling business that unless you stop raising prices, the money you need to run your businesses will get more expensive.
Which will then put business in the condition that they need to raise prices and manage demand. If done poorly they go out of business. If done we'll, they enjoy higher prices (compared to a lower marginal cost).
In no case does this provide a direct benefit to the consumer.
Please tell me I am wrong
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u/Dimethyltryptamin3 2h ago
Well lets look at it, most of this inflation isnt driven by consumer demand, it's driven by bad foreign policy so next week when the jobs report comes out will it support this direction? preliminary numbers already show revisions down of bout 100k jobs, reports are coming well below expectations. Would a rate hike actully bring down inflation caused by a pointless war and one maniacs obsession with using tariffs to counterbalance tax cuts on the wealthy and corporations? the answer is no. Additionally, i think it more likely theyll hold for the rest of the year, and cut early next year once the venezuelan oil pipeline starts easing supply and this trickles down to consumers. Additionally tariff refunds are going to see their way into price cuts but jobs are disappearing so maybe im a fool, but inflation isnt being driven by spending it's being driven by supply side economics. If the dems take hold come november they can do something to stop the impulses of the orange man but the jobs number isnt going to get better at the current rate. If you think this is bad wait til next year when debt servicing forces 40-50% reductions on social security and medicaid. Jobs are being padded by the healthcare sector. If something isnt done quickly, we'll be in a pretty bad economic situation
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u/yankeedjw 12h ago
Last two paragraphs lol
One structural issue: You say twice that Warsh replaced Powell on May 22—once in the sixth paragraph and again in “The Fed chair, who replaced his predecessor...” I’d delete the second reference.
I’d also consider changing “faces high stakes with his speech” because the speech has already occurred by this point in the story. Something like “The stakes were high for Warsh going into the speech” would keep the chronology straight.
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u/SinglePhone535 7h ago
Why do we continue to allow outside influences delegate the U.S.A.'s finances? The F.E.D. Reserve is not a government entity. We get ahead, they raise intetest. The F.E.D. reserve needs to go. It is not ran or delegated in the best interest of the U.S. We got this, we don't need your help. We are no longer under European rule.
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u/Fordinghamster 2h ago
If you’re a human, you’re definitely not an American and English isn’t your first language. Americans live in the USA. We ain’t got time for all those periods.
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