Inflation Forces the Fed’s Hand

The plain fact is that inflation is too high and has been for too long.

Raising interest rates is a big deal because it takes a certain amount of evidence and confidence to say we need to change direction.

Investors initially anticipated more rate cuts once Warsh took over, because that's what Trump wanted and what Warsh had signaled.

When the U.S. bombing campaign began in Iran, not too many people realized at the time how that was going to change everything.

The commitment to deliver is strong, unanimous and unambiguous, and that's an important message we've missed for five years.

The bold statement led people to prepare for interest rates to go up.

Three dissents in one direction is a significant statement in Fed terms. Warsh's decline to offer a rationale for holding rates created a credibility dilemma about whether he would follow through on his pledge.

The Iran war, AI investment boom, and persistent tariffs are all driving prices up.

All indications were that the Fed needed to raise rates, which President Trump has long opposed.

The board is very hostile and political, doing the wrong thing, so Warsh should do whatever he needs to do.

Trump gave Warsh his blessing to raise rates, implying it was a lost cause.

The real worry is that inflation is no longer making progress toward the Fed's target.

The Fed is at the mercy of oil and commodity prices and cannot fix supply-side inflation drivers. Rate hikes won't stop the AI investment boom or bring down oil prices, but can cool other sectors.

Flat real wages could force people to spend from savings and crimp consumer spending if it continues.

Consumer resistance to price increases makes it harder for businesses to raise prices, which helps the Fed.

Fed officials project at least one more rate hike before year-end.

Warsh's rate hike proves his independence from Trump, quieting concerns he would be a sock puppet.

The challenge will be maintaining independence if inflation remains high while the stock market drops or unemployment rises.