Breitbart Business Digest: World War Warsh—The Battle Over the Fed’s Future

Warsh Arrives to Make the Fed Great Again

Welcome back to Friday! This is the Breitbart Business Digest weekly wrap, written from a small bunker so many miles away from the White House that no one will ever doubt our independence.

This week we bring you a special New Fed Chair Edition of the wrap. Kevin Warsh is finally chairman, Wall Street is freaking out over AI inflation, Waller and Barkin are worried about serial supply shocks unanchoring inflation expectations, and Stephen Miran has lost the game of musical chairs because Jerome Powell refused to get out of his seat.

And so, let us free ourselves from the static frameworks and models that have burdened us for the last seven days, and move onward toward Memorial Day.

Mr. Warsh Goes to the White House

Supreme Court Justice Clarence Thomas swore in Kevin Warsh as chairman of the Federal Reserve at a White House ceremony on Friday. President Trump doubtlessly chose the East Room as a gesture toward the history of our nation and the tradition of conservative energy in the executive. The last chairman who received the mantle of monetary policy in the East Room was Alan Greenspan, appointed by President Reagan and sworn in by Vice President George Bush in the summer of 1987.

Because we live in an era plagued by Trump Derangement Syndrome, the decision to hold the ceremony at the White House was treated by the legacy media as a threat to Fed independence. Some even complained that Trump and Warsh seemed too friendly with one another at the ceremony. OMG! They were smiling, shaking hands, and saying nice things!

The notion that the chair of the Fed should be on bad terms with the president is evidence of the extraordinary mental rot inflicted by pathological TDS. It’s basically projection by Trump haters. They hate Trump, and so they think anyone who doesn’t hate Trump cannot be good for the country. By definition, any Trump appointee is deemed a corrupt failure and an attack on our institutions. A more sober reaction would have been relief at the end of the incredible acrimony between the Fed and the White House that has characterized so much of the now former chair Jerome Powell’s tenure.

And let’s be perfectly clear. The aspersions cast on Warsh are not particular to Warsh at all. Accusations of insufficient fidelity to Fed independence would be leveled at any person Trump appointed. Similarly, the complaints about holding the ceremony at the White House are also largely ad hoc. Even if Warsh had taken the oath of office at the Eccles Building, pundits would have said that Trump was symbolically declaring conquest over monetary policy in the very building whose renovations were at the center of the Justice Department’s controversial investigation. Warsh could have taken the oath of office in the gold vault beneath the New York Fed, and pundits would have worried Trump was signaling a nefarious plan to seize the gold.

“I will lead a reform–oriented Federal Reserve, learning from past successes and mistakes, escaping static frameworks and models, and upholding clear standards of integrity and performance,” Warsh said from the East Room podium.

The line about escaping from “static frameworks and models” is particularly important. For far too long, the Fed has been dominated by economic models that see growth and tax cuts as inflationary, something to be offset by tighter monetary policy. The Fed’s view of the U.S. economy’s long-term potential output is ridiculously low, with safe growth only recently being lifted from 1.8 percent to two percent. More than anything that happens with interest rates this year, casting this low-growth forever view into the ash heap of history could be Warsh’s most important accomplishment.

“I want him to be totally independent,” Trump said just before Warsh was sworn in. “I want him to be independent and just do a great job. Don’t look at me, don’t look at anybody, just do your own thing and do a great job.”

But we’re told that if you play those words backward while standing on one leg, Trump is really telling Warsh to cut rates immediately.

World War Warsh: The Battle of AI

The dominant view on Wall Street is that Warsh’s Fed is going to have to raise rates rather than cut them, likely as early as this year. The federal funds futures market currently implies no chance of a cut this year and a high likelihood of one or two hikes by the end of the year. All the way out through the summer of 2027, the market is pricing in nothing but hikes.

One reason for this is that the AI buildout is seen by many money managers as inflationary. If you squint your eyes and furrow your brow enough, this view can almost seem to make sense. There’s an awful lot of capital expenditure going into building data centers and expanding compute power. Corporations are racing to invest in AI. Prices of AI-adjacent technology are soaring. So, if your view of inflation is downstream of corporate balance sheets, this makes sense.

But that’s not the sort of inflation the Fed worries about. The Fed doesn’t target the indexes deep inside the producer price index. It targets the personal consumption expenditure price index, which does not include the kind of corporate spending or prices driven up by AI. Even if Warsh moves the Fed away from its obsession with headline and core PCE prices, he’s not going to move the inflation target to focus on prices of chips bought by hyperscalers.

Could price pressures on AI goods drive up consumer prices? It’s possible—maybe even likely—that some high-powered graphics chips used by video game enthusiasts will continue to rise in cost. But most consumer electronics are not likely to be affected because their supply and demand don’t move through the same channels as AI goods. Smartphone prices are down 12.4 percent from a year ago, computer prices are up just 2.3 percent, prices for information services (think: internet connections) are down, and wireless phone service prices are down.

Notably, in the one consumer category that has shown rapid inflation—computer software and accessories—much of the apparent price surge may be exaggerated by measurement problems. On his final day as a Fed governor, Stephen Miran and his coauthors argued in a new FEDS Note that this small category’s 73 percent annualized price spike between November and March may be substantially distorted by category mismatches with CPI data and insufficient quality adjustments for rapid AI improvements in software.

We suppose you could argue for a more roundabout AI-inflation channel running through higher commodity and energy prices spilling into consumer costs. But this effect is likely limited. Goldman Sachs and Dallas Fed estimates put the direct and indirect impact of AI-driven electricity demand at roughly 0.1 percentage point or less on core PCE in 2026–2027 via business pass-through.

Importantly, much of the longer-term demand for commodities and electricity was already baked into forecasts via broader electrification trends—especially electric vehicles. That “electrification” channel is increasingly being shelved amid clear consumer rejection and slowing EV adoption. The AI buildout should be viewed as replacing or redirecting a chunk of prior Green New Deal-style demand rather than adding to it on net. Hyperscalers’ long-term power purchase agreements are also accelerating new supply (gas, renewables, nuclear restarts) and efficiency gains that blunt the pressure.

World War Warsh: In Waller’s View, AI Is Leading to Non-Inflationary Growth

Federal Reserve Governor Christopher Waller’s speech on Friday provides strong support for the view that the AI buildout is not the inflationary force many on Wall Street fear. He explicitly credits “torrid business investment related to artificial intelligence” as a key reason U.S. GDP growth remains solid at around two percent, treating it as a positive contributor to economic activity rather than a source of overheating demand.

Critically, Waller does not identify AI-related capital expenditure as an inflation risk. His dominant concern is the Middle East energy shock, the breadth of recent price increases, rising input costs, and the possibility that repeated supply shocks could unanchor inflation expectations. In his telling, AI is helping sustain growth, while the labor market has moved off center stage because labor supply and demand have come into rough balance. That is the opposite of the demand-side inflationary story now driving fears that the Fed will have to tighten further.

World War Warsh: Inflation Expectations and the Energy Shock

Waller’s speech highlighted a different inflation concern, one that Richmond Fed President Tom Barkin also emphasized in remarks earlier this week. Both are focused on something more subtle than the energy shock itself: what repeated supply shocks do to the inflation-expectations framework that has allowed the Fed to look through temporary price spikes. That framework depends on households and businesses believing elevated inflation is genuinely transitory. After more than five years above two percent, that trust is no longer automatic.

Waller makes the most rigorous case. Even if each individual shock is transitory, he argues, a sequence of price surprises can lead people to rationally revise their inflation expectations upward through Bayesian updating — like seeing “heads” win a coin toss repeatedly and suspecting that the coin isn’t fair. Barkin makes the same point more plainly: at some point the anchor loosens not from any single wave, but from the cumulative pounding of many.

The policy implication is uncomfortable. It means the Fed may eventually need to respond to supply shocks it would normally look through — not because they are demand-driven, but because the credibility cost of repeated forbearance has grown too high.

That is probably the most powerful hawkish case Warsh will have to fend off if he wants to resist rate hikes in the near term. Waller’s own shift in a hawkish direction also helps explain why cuts are — as the market has been forecasting — likely off the table for the rest of this year.

Stephen, We Hardly Knew Ye

The ascension of Warsh to the chair of the Fed also means the end of Stephen Miran’s time as governor. Trump appointed the head of his Council of Economic Advisers to fill out the remainder of Adriana Kugler’s term as Fed Governor. Kugler stepped aside early under initially mysterious circumstances. We now know Kugler had run into Fed ethics and trading-rule problems involving individual stock trades by her or her husband, including trades during blackout periods, which sounds risky. Don’t trade while blacked out, my brothers and sisters.

Kugler’s term—and therefore Miran’s—officially expired in January, but Fed governors are allowed to stay in office until a replacement is confirmed. Under ordinary circumstances, Powell would have stepped aside as governor when his term as chair ended, and Warsh would have taken that seat, leaving Miran as a holdover awaiting reappointment or replacement. Powell’s decision to cling to his position on the Fed’s Board of Governors, however, meant that Warsh had to take Miran’s seat in order to serve as chairman (all chairman also have to be governors).

So, Miran is out after 248 days as Fed governor. This makes him the shortest-serving post-World War II Fed governor to actually survive the job. The shortest tenure of a Fed governor was Paul E. Miller, the longtime Midwestern Fed official who died just 69 days after taking a seat on the Fed board. The public records available to Breitbart Business Digest do not disclose the cause of death or even where he was when he shuffled off his mortal coil.

If we reach back before World War II, we can also add Ralph Morrison, the Texas businessman and friend of FDR who served on the board for 150 days in 1936. At the time, the Fed was undergoing a structural transition under the 1935 Banking Act, and each governor was associated with one of the 12 districts. Morrison, who held the Dallas seat, resigned early because he found the rest of Roosevelt’s New Dealer crowd “uncongenial”—they treated him like a crony appointment and not a serious central banker—and he reportedly really did not like working under then-chairman Marriner Eccles.

Prior to the reorganization in 1936, the Fed’s board members were not called governors. They were just members. If we want to include them in our count of short-termers, there was David Wills from the Cleveland Fed. Wills was appointed in late 1920 by outgoing President Woodrow Wilson. His term expired on March 4, 1921, the date of the presidential inauguration in that era. This was common in the early years of the Fed. Presidents often made recess appointments or short-term fills near the end of their term. Incoming President Warren G. Harding then appointed his own choice, John R. Mitchell, in May 1921. Wills survived his term on the board but died in October 1925 while serving as president of the Cleveland Fed.

The absolutely shortest serving board member, however, was Milo D. Campbell. A well-respected public servant and dairy farmer from Michigan, the 71-year-old Campbell was appointed on March 14, 1923. On March 22, 1923, while playing golf at the Columbia Country Club in Washington, DC, Campbell collapsed and died of a cerebral hemorrhage. He had just finished 18 holes and was starting another round.

Miran survived his brief term and even the bonus time as Fed governor, never played golf at the Columbia Country Club, and is now free to enjoy Memorial Day like a productive member of society.