Hot inflation traps new Fed chief between Trump and the markets

The inflation measure that the Federal Reserve watches most closely rose to its highest level in almost three years. The data came out on Thursday. That gives the central bank's new chair, Kevin Warsh, a hard problem in his first days on the job.

President Trump put Warsh in the job to deliver lower interest rates. The numbers point the other way. A fresh oil shock from the war with Iran is pushing prices up. Traders now expect the Fed to keep rates steady through most of 2026. Some see a small chance of a rate increase by December.

The Economist notes that Warsh has long argued that gains from artificial intelligence (AI) would make workers more productive and bring inflation down on their own. He said this would give the Fed room to cut rates. That idea now meets a harder reality. He has to satisfy three groups that want different things. They are his colleagues at the Fed, the bond market, and a president who wants cheaper money.

Seen through an Austrian economics view, this is the cost of past choices. For years, cheap credit and heavy federal spending pushed money into places it would not have gone if interest rates had been higher. When prices finally climb, a central bank cannot fix the problem by cutting rates, because that would make it worse. Warsh's choice is hard. He can let rates stay high enough to slow the economy, or he can print money into the inflation he was hired to control.

Markets are not waiting for an answer. Stocks still closed at record highs on Thursday. But investors are also moving into hard assets like gold. That shows how little faith they have in paper money right now.