The latest CPI numbers were released for June 2026. The CPI was down 0.4% for the month. This was largely due to the reduction in oil/ gas prices.

The annual CPI now stands at 3.5%, which is still well above the Fed’s supposed target of 2%. The median CPI is at 2.7% year-over-year.

While this is a little bit of welcome news for consumers, there is still a lot to be pessimistic about. The energy prices are largely dependent on what is happening in Iran and the Strait of Hormuz. Good luck trying to predict anything that is going to happen there. Donald Trump doesn’t know what he’s going to do tomorrow.

The bigger picture with inflation is what the Fed is going to do and how much it will continue to help Congress fund the massive deficits.

Warsh Speaks as a Hawk

It has been surprising how much Kevin Warsh has sounded like a hawk. (It is all relative.)

Warsh will actually say that it is primarily monetary policy that drives inflation over the longer run. Of course, what the Fed does is inflation. It is the Fed that engages in monetary inflation. What Warsh is saying is that it is monetary inflation that ultimately causes price inflation.

Let’s remember that it wasn’t long ago that Trump was heavily criticizing Jerome Powell as Fed chair. He called him “Too Late Powell”, and that was perhaps one of the nicer names.

In terms of rhetoric, Warsh has been much more of a hawk than Powell. Warsh is talking tough about doing everything needed to tame price inflation.

Maybe these are just words. Maybe Warsh and Trump have a quiet agreement. Warsh will talk tough on inflation while keeping a relatively loose monetary policy.

I saw some portions of Warsh getting questioned in the Senate. Most of it was just a political show. I won’t I say don’t care about possible corruption and influence peddling at the Fed, but the whole entity is that. It is an organization that has been given a monopoly power over the money supply of the nation. It was born out of corruption and influence peddling.

The Road Ahead

It’s possible Warsh is serious about getting price inflation back to 2%. We know the Fed isn’t going to pursue price inflation of 0%, even though it should. We know the Fed isn’t going to be abolished any time soon. So, given the alternatives, 2% price inflation sounds nice these days.

The problem is that the government keeps spending money like crazy. The deficit continues to grow, even during a time of relatively low unemployment.

We haven’t seen a prolonged recession in 18 years. It’s hard to say if 2020 was a recession because of the lockdowns. It was also averted because the Fed created massive monetary inflation right from the beginning of the lockdowns, or even a few weeks before.

If we get a recession resembling 2008, we really have no idea how the Fed will react. We can assume that the Fed will not let any major financial institutions fail. We can assume that the Fed will not let the bond market collapse. Other than that, we really don’t know.

I’m not sure why, but I take Warsh a little bit seriously that he wants to get price inflation down. I don’t think Trump is in charge here. The Fed doesn’t want the dollar to sink in foreign markets because it would compromise the power of the U.S. government.

I can envision the Fed actually raising its target interest rate while still gradually increasing its balance sheet. It’s a seemingly contradictory policy, but that hasn’t stopped the Fed before.

Again, if we hit some kind of financial crisis, then all bets are off. For now, I would bet on a somewhat neutral Fed policy to the degree that’s possible. Maybe we’ll see one rate hike. The balance sheet will likely level off with a very gradual increase.