Warsh Can Talk About Cuts. He Cannot Make One Yet.

Kevin Warsh is walking into the Federal Reserve with gasoline on his shoes.

The Senate confirmed Warsh on May 13 in a largely party-line 54-45 vote, putting President Donald Trump’s pick in charge of the U.S. central bank just as inflation is heating back up and the White House is pressing for lower interest rates, according to the Associated Press¹. The Federal Reserve, or Fed, is the institution Congress gave the job of steering monetary policy toward maximum employment and stable prices, often called the “dual mandate,” and the Fed says 2 percent inflation over time, measured by the personal consumption expenditures price index, is most consistent with that price-stability goal, according to the Federal Reserve Board³. An interest-rate cut means lowering the target range for the federal funds rate, the short-term rate that helps set borrowing costs across the economy, and the Fed’s April 29 statement left that range at 3.50 percent to 3.75 percent while saying inflation was elevated partly because of higher global energy prices, according to the FOMC statement⁴.

My view is blunt: Warsh has room to build a case for future cuts, but he has very little room to cut now. That is not because every gasoline spike deserves a rate hike. It is because the current inflation rebound is too broad, expectations are too fragile, and Warsh’s own political circumstances make an early cut look like surrender unless the next data clearly change the story.

Start with the price data. The April consumer price index rose 0.6 percent from March and 3.8 percent from a year earlier, while energy rose 3.8 percent in the month and accounted for more than 40 percent of the monthly increase, according to the Bureau of Labor Statistics⁵. Gasoline was the eye-catcher: the gasoline index rose 5.4 percent in April and 28.4 percent over the year, according to the same BLS release⁵. If that were the whole story, Warsh could plausibly say the Fed should not punish workers because a war or oil disruption raised pump prices.

But it is not the whole story. Core inflation, meaning inflation excluding volatile food and energy prices, rose 0.4 percent in April and 2.8 percent over the year after a 2.6 percent annual reading in March, according to BLS⁵. Shelter rose 0.6 percent in the month and 3.3 percent over the year, food rose 0.5 percent in the month and 3.2 percent over the year, and food at home rose 0.7 percent in April, according to BLS⁵. There were softer details, including flat core goods, a 0.2 percent drop in new vehicles, unchanged used cars and trucks, and a 0.1 percent decline in medical care, according to BLS⁵. Still, a new Fed chair cannot responsibly point to weak used-car prices while shelter, groceries, gasoline and core prices are all moving in the wrong direction.

The producer-price data make the same problem harder to dismiss. The producer price index for final demand rose 1.4 percent in April and 6.0 percent over the year, the largest 12-month rise since December 2022, while final demand less foods, energy and trade services rose 0.6 percent in the month and 4.4 percent over the year, according to BLS⁶. Producer prices are not consumer prices, but they matter because firms facing higher input costs often try to pass some of them on. The uncomfortable April message is that the pressure is not sitting neatly inside the gasoline pump.

The best case for cutting is real. Monetary policy cannot produce oil. A central bank that raises rates in response to a pure supply shock, meaning an event that makes key goods scarcer or more expensive, fights inflation by weakening demand, jobs and incomes rather than by fixing the broken supply chain. The Boston Fed made that logic cleanly in a discussion of food and energy shocks: tighter U.S. monetary policy will not stabilize foreign oil production or increase harvests, and supply shocks tend to hurt households by forcing them to spend more on necessities and less on everything else, according to the Boston Fed⁷. A later Boston Fed analysis put the tradeoff even more sharply: when inflation rises because supply contracts, the Fed can stabilize prices only through policy that pushes employment below the desired level, while demand-driven inflation can be restrained in a way that helps both employment and price stability, according to the Boston Fed⁸.

That is the strongest argument Warsh could use. Fed independence does not mean always sounding hawkish. Fed independence means making monetary policy for the Fed’s long-run goals rather than the president’s short-run political needs. The Fed describes itself as an independent government agency accountable to Congress and the public, and says Congress structured it so monetary policy would not be subject to political pressures that could lead to bad outcomes, according to the Federal Reserve Board⁹.

But the supply-shock argument has a condition attached. The Boston Fed’s own framework says monetary policy need not respond to supply-driven food and energy price increases if they do not pass through meaningfully into core inflation, according to the Boston Fed⁷. April has not met that test. Core inflation accelerated. Shelter jumped. Food jumped. Wholesale prices broadened. That does not prove the economy is overheating, but it does prove Warsh does not yet have the clean evidentiary record he would need.

Expectations are the next constraint. The New York Fed’s April Survey of Consumer Expectations found one-year inflation expectations rising 0.2 percentage point to 3.6 percent, while three-year expectations stayed at 3.1 percent and five-year expectations stayed at 3.0 percent, according to the New York Fed¹⁰. That is mixed evidence, and the stable longer-run numbers are the best fact for anyone who wants a cut. The same survey also found gas-price expectations retreating sharply, credit-access perceptions deteriorating, and the perceived probability of higher unemployment reaching 43.9 percent, the highest since April 2025, according to the New York Fed¹⁰.

I do not think that saves the near-term cut case. The same New York Fed survey found expected household spending growth rising to 5.4 percent, its highest since July 2023, according to the New York Fed¹⁰. If a new chair cuts while short-run inflation expectations and spending expectations are rising, he risks teaching households, firms and bond traders that the Fed’s reaction function has softened. That lesson is hard to unteach.

Warsh has an added problem: Warsh. In a 2010 Fed speech, he warned that expanded asset purchases had risks, that a sustained run-up in commodity prices passed into final prices could weaken the case for accommodation, and that the problem would be worse if inflation expectations increased materially, according to the Federal Reserve Board¹¹. Quantitative easing, or QE, is large-scale central-bank buying of assets, usually bonds, meant to ease financial conditions when ordinary rate cuts are limited. Warsh has long been skeptical of easy-money tools; after the crisis, he also criticized QE as an “untested, incomplete experiment,” according to Newsmax’s account of his Wall Street Journal argument¹². That history gives him anti-inflation credibility, but it also narrows his room to pivot without evidence.

Markets have noticed the same squeeze. Axios reported on May 13 that CME FedWatch futures implied a 34 percent probability that the Fed’s target rate would end 2026 higher than its current level, up from 16 percent a week earlier, after hot consumer and producer inflation reports, according to Axios¹³. A 34 percent probability is not a veto. Markets can be wrong. But cutting against that repricing would require a chair to over-explain himself on day one, and over-explaining is usually what policymakers do when the data are not on their side.

The precedent Warsh should study is Paul Volcker, not because today is 1979 all over again, but because new Fed chairs earn freedom by first defining their reaction function. When President Jimmy Carter appointed Volcker in 1979, GNP price inflation had reached 9 percent, and Volcker soon shifted policy in a way that led to large federal funds rate increases, according to a Federal Reserve history paper¹⁴. Warsh does not face Volcker’s inflation rate. He does face Volcker’s credibility logic: if a chair arrives during an inflation scare, the first move sets the price of every later move.

So my threshold is simple. Warsh can cut if two consecutive reports show core CPI and core services cooling to roughly a 2.5 percent annualized pace or lower, long-run survey and market inflation expectations stay flat or fall, and labor or credit data weaken enough that the employment side of the mandate clearly needs help. Until then, he should hold the target range steady and say exactly why.

The next markers arrive fast: the May CPI report is scheduled for June 10, the May PPI report for June 11, and the next FOMC meeting is scheduled for June 16-17, according to BLS⁵, BLS⁶, and the Fed’s calendar¹⁵. My prediction: Warsh will not cut at that June meeting, and he should not. If he does without a clear cooling in core prices and expectations, the bond market will read the move less as relief for households and more as a down payment on political inflation.