Robert Armstrong published September 17 2026. The idea that Kevin Warsh was Donald Trump’s sock puppet was never credible. Not because of anything we know about the new Federal Reserve chair. The point was that, once appointed, he never had anything to gain from pleasing the president. Warsh is a rich man and history will judge him on the performance of the economy over the next four years and beyond. Trump is a lame duck, gone in two years, who has proven that if he picks a fight with the central bank he will suffer a drawn-out and embarrassing defeat. Still, now that Warsh’s Fed has raised rates over the presidents’ increasingly feeble protests, we can stop talking about this non-risk, which is nice. A bigger relief is that, after his third press conference (and fourth major public appearance), the market is getting a clearer picture of Warsh, who is finding his feet as a communicator. Central to this is a “standard of action” for monetary policy Warsh first stated in Jackson Hole and repeated yesterday: “We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed.” There is lots of room for interpretation in that sentence, but the Fed chair has added some useful detail, including: The “objective” is PCE inflation of 2.0 per cent.

“Underlying” inflation is defined, in important part, by trends in the diffusion of inflation — the number of product and service categories seeing price increases significantly above 2 per cent (“significantly,” in practice, seems to mean 3 per cent and above). Looking at underlying inflation therefore does not mean simply looking through supply shocks, whether driven by tariffs or wars in the Middle East. The Fed must make sure that, for example, high oil inflation doesn’t “broaden out” and infect other prices. Markets are good barometers of inflationary pressure, so market-based measures of inflation compensation and inflation expectations are themselves important indicators, over and above what prices are doing. “Movement” towards the objective is to be understood in terms of sustained trends, not any one data point.