In a speech so anticipated you'd think he was announcing the next Marvel movie, Federal Reserve Chairman Kevin Warsh took the stage in Jackson Hole, Wyoming, on Friday to deliver a message that basically boiled down to: "Inflation is still a thing."
"We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed," Warsh declared, adding, "Otherwise, we have work to do."
And work there is, as inflation continues to mock the Fed's 2% target. To help us parse the tea leaves, NPR's Ayesha Rascoe brought in Mary Lovely, a senior fellow at the Peterson Institute for International Economics, who graciously agreed to explain things.
Lovely noted that Warsh stopped short of promising an interest rate hike in September, but did acknowledge that inflation isn't slowing down in any meaningful way. This, she said, aligns with what most people have already noticed, which is apparently reassuring.
"That tends to build confidence in his outlook and the belief that he will be a straight shooter," Lovely said, because nothing says straight shooter like a Fed chair who tells you what you already know.
The markets, ever the optimists, took some comfort in these words and are now expecting a modest rate hike at the Fed's September meeting. But would that actually fix things? Lovely pointed out that a lot depends on external factors: President Trump's tariffs (he's threatening Canada again), the conflicts in Iran and Ukraine, and the general chaos that keeps fuel prices on a rollercoaster.
Speaking of tariffs, Rascoe asked Lovely how one "wins" the U.S.-Canada trade war. Lovely's response: "This one makes absolutely no sense." She reminded us that Canada is not just a maple syrup dispenser; it's our largest source of imports, including crucial inputs like energy, wood, and aluminum, which American factories turn into other things. Slapping tariffs on these just makes American producers less competitive. Also, there are already tariffs on Canadian-made vehicle parts, which is a direct violation of the USMCA - the trade deal President Trump himself signed. This has led Canadian Prime Minister Carney to quip that anything the U.S. signs is "signed in pencil." Charming.
Then there's Treasury Secretary Scott Bessent's brilliant plan to buy back tens of billions of dollars in Treasury bonds to lower interest rates on government debt. Lovely says the markets aren't buying it - literally. "If the fundamentals are in conflict with what Secretary Bessent wants, the market's going to win," she said. And indeed, his efforts had a very short-lived effect. Meanwhile, the Fed might be pushing short-term rates up, creating what Lovely calls a "confusing pattern" for businesses already unsure about when and where to invest.
Speaking of investment, Lovely noted that almost half of the current U.S. investment is going into data centers, which, surprise, don't employ a lot of people. She's worried about job creation, especially for new grads like her own son. "I myself have a new graduate, my son, and I'm deeply concerned about what his path will look like," she said, adding that folks at the dentist's office and grocery store are telling her their kids won't have the same opportunities. That's a sad thing, she said, and it might influence people at the ballot box.
So there you have it: inflation high, rates uncertain, trade wars nonsensical, and data centers hoarding all the investment. The only thing lower than the Treasury bond yields might be our collective optimism.
(SOUNDBITE OF CIAO CIAO MARIGOLD'S "MONSTERA ESQUELETO")
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