Kevin Warsh is staring down a classic Fed nightmare right now.
Today's PPI numbers came in ugly — headline PPI spiked to 6.3%, the highest in 45 months. Core PPI also hit a 44-month peak. Yesterday's CPI and Core CPI both ran hotter than expected. Translation: inflation is still not behaving.
Normally, the Fed's playbook here is simple — hike rates, cool things down. But there's a catch.
The job market is already softening. Unemployment ticked up to 4.2%. That's not a collapse, but it's a clear signal that the labor market is losing steam.
So now the Fed is stuck between two bad options:
1. Hike rates → Inflation might cool, but you risk crushing the job market and economic productivity even further. Recession risk goes up.
2. Pause or hold → The job market might stabilize, but inflation could spiral higher. If that happens, the Fed will eventually be forced into an even more aggressive tightening cycle — just like we saw in 2022.
Neither path is clean. This is the textbook definition of a policy dilemma. The Fed is trying to thread a needle in the dark, and the margin for error is razor-thin.
Warsh and Powell know that whatever they do next, someone's going to get hurt — either workers or savers. The question is: which pain are they willing to accept first?
Today's PPI numbers came in ugly — headline PPI spiked to 6.3%, the highest in 45 months. Core PPI also hit a 44-month peak. Yesterday's CPI and Core CPI both ran hotter than expected. Translation: inflation is still not behaving.
Normally, the Fed's playbook here is simple — hike rates, cool things down. But there's a catch.
The job market is already softening. Unemployment ticked up to 4.2%. That's not a collapse, but it's a clear signal that the labor market is losing steam.
So now the Fed is stuck between two bad options:
1. Hike rates → Inflation might cool, but you risk crushing the job market and economic productivity even further. Recession risk goes up.
2. Pause or hold → The job market might stabilize, but inflation could spiral higher. If that happens, the Fed will eventually be forced into an even more aggressive tightening cycle — just like we saw in 2022.
Neither path is clean. This is the textbook definition of a policy dilemma. The Fed is trying to thread a needle in the dark, and the margin for error is razor-thin.
Warsh and Powell know that whatever they do next, someone's going to get hurt — either workers or savers. The question is: which pain are they willing to accept first?