The Warsh Period Begins

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The Warsh Era Begins

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Summary

 

The hosts dissect new Fed chairman Kevin Warsh’s first FOMC press conference, in which the Fed held the federal funds rate at 3.75% and Warsh offered a broad, systemic critique of how the Fed has operated, which the hosts find rhetorically remarkable coming from that position even as they expect no meaningful reform because “the institution itself is the problem.” They stress the Fed hasn’t hit its self-invented 2% target once in five years, with CPI at a 38-month high, PPI at a 42-month high, and the dot plot not showing 2% inflation until 2028, and they argue Warsh is boxed in by the regime’s need for low rates, war financing, and dollar reserve status. McMaken bluntly rejects Warsh’s stated goal of increasing the Fed’s credibility, saying he wants the Fed “to go down in flames,” while warning that a “reform-minded” chair could deliver even worse policy under a nicer veneer.

Top 5 Key Topics

• The rate hold and persistent inflation failure: The FOMC unanimously held the federal funds rate at 3.75%, down from a roughly 5.5% peak, with the hosts noting May CPI hit a 38-month high, PPI a 42-month high, and PCE a 20-month high. They emphasize Warsh repeated that the Fed has not hit its made-up 2% target at any point in the last five years, and argue the real target should be closer to zero or negative since a productive economy drives prices down.
• Warsh’s systemic critique as theater: Bishop calls the press conference a fascinating but largely symbolic “stall tactic,” with “task force” the most repeated phrase and a critique of the Fed’s data collection, forward guidance, and mainstream economics that mirrors the Fed’s own failures. The hosts agree the rhetoric is institutionally significant coming from the podium but expect no return to a gold standard or genuine policy change.
• Warsh is boxed in by the regime and his own loyalties: McMaken argues the Fed operates within a constricted arena bounded by the regime’s needs for low interest rates, revenue, war financing, and dollar reserve status, so Warsh’s organizational goals “may or may not have anything to do with what actually happens.” Bishop highlights the dissonance of Warsh, a reputed hawk owing his position to the most publicly Fed-critical president ever, who wants lower rates, and predicts the rhetoric goes “off the rails” once it requires confronting Congress rather than the boring target of the Bureau of Labor Statistics.
• Credibility, redefining inflation, and the China parallel: McMaken says he does not want the Fed’s credibility increased because that just fools normal people into thinking the Fed helps them when it is hostile to conservative savers. O’Keefe flags two red flags: Warsh signaling a move toward trimmed-mean inflation (setting aside the most dramatic, painful price moves) and using AI’s deflationary potential as cover to inflate more, with Bishop noting the 1990s opening of trade to China shows how “deflation phobia” and fear of cheap goods historically justified juicing the economy into the 2008 crisis.
• Forward guidance and the one A+ moment: The hosts trace forward guidance and the dot plot as post-2008 communications innovations that Warsh is now hinting are useless or harmful, with Bishop revealing he didn’t even submit his own dot in “active rebellion.” McMaken gives Warsh an “A+” on one insight, that markets work best reacting to real economic data rather than filtering everything through “what will the Fed do,” producing the absurdity where bad unemployment news sends stocks soaring on hopes of cheaper debt, though O’Keefe counters that this market obsession is a symptom of an economy addicted to easy money, a root Warsh’s plan leaves untouched.