Warsh Believes the Economy
is Really Strong.
The real damage is not inflation. It is the uncertainty.
Kevin Warsh and the FOMC left rates unchanged at 3.75–4%. Inflation is elevated. Core is sticky.
Inflationary expectations are not the monster the Fed is pretending they are. They are not 2021–2022. They are not the Biden era, when prices were ripping at 7–9% and the Fed was still printing while telling everyone it was “transitory.”
That was a credibility collapse. This is residual heat after a massive fiscal and energy shock. Pretending the two are the same is how you get policy paralysis.
Here is the clean choice the Fed refuses to make.
If the mandate is to drive the number back to 2% with deliberate force, they should have hiked. Full stop. You do not “wait for more data” when the data already show you are still above target after years of missing it.
You raise, you own it, and you give the economy a clear terminal rate. Warsh has said the 2% target is firm. Fine. Then act like it.
If, instead, the idea is that market forces, tighter credit, and a cooling labor market will finish the job on their own, then there is no rush. Hold, let real rates do the work, and stop the theater.
That is a coherent position. It is not what they are doing.
What they are doing is worse than either path. They have raised enough that further hikes are no longer obvious, yet they refuse to say the current level is sufficient.
During Biden it was obvious the Fed was behind. Now it is less obvious, and that is exactly why the silence hurts.
We have already done the heavy lifting of the hiking cycle. The remaining gap to 2% is small relative to the last cycle. Pretending we still need to keep the door open to more hikes, without defining when that door closes, is how you turn a manageable inflation overshoot into a broader growth drag.
The bond market has been trying to tell them this. Real yields are not loose. Financial conditions have tightened. Energy is the dominant driver of the latest prints, not a wage-price spiral. Expectations have not unanchored. The economy does not need a lecture about vigilance. It needs a terminal rate.
Warsh has the credibility of a hawk. He has not yet used it to close the chapter. Until he does, the economy pays the price for not knowing when he will say the job is done. We have raised enough. The Fed just needs to admit it.
Best Regards,
Lior Gantz
President, WealthResearchGroup.com
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