Kevin Warsh can’t reopen the Strait of Hormuz
Federal Reserve Chairman Kevin Warsh faces pressure to address inflation, though experts argue that current supply-side issues are beyond the Fed's control. The article suggests that raising interest rates may be ineffective against inflation driven by geopolitical conflict and tariffs.
Why it matters
Explains the limitations of monetary policy in an economy struggling with supply chain disruptions and geopolitical instability.
The public is fed up with the high cost of living, and the Federal Reserve is once again under pressure to act. Kevin Warsh, the new Fed chairman, has vowed to get inflation back to 2%. Some investors suspect the Warsh-led Fed will show it’s serious about that pledge by raising rates as soon as Wednesday. And yet: As powerful as the Fed is, its inflation-fighting tools are limited when it comes to combating the supply-driven inflation America is facing now. The Fed can’t conjure a durable ceasefire in the war with Iran, reopen the Strait of Hormuz, nor disappear President Donald Trump’s high and volatile tariffs. “Rate hikes won’t keep the bombs from dropping,” said Benson Durham, a former Fed official and founder of DASM LLC, an independent research firm.
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