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June 18,  2026

Warsh Is Serious About Inflation—But Signals an Improving Outlook

Always on the lookout for its next monetary sugar high, the stock market did not love what Kevin Warsh had to say during his first press conference as Fed Chair.

Stocks, gold, Bitcoin, and other rate-sensitive assets sold off noticeably following the Federal Reserve's policy announcement yesterday—and even more so after Warsh took the podium.

While the Fed left interest rates unchanged, an unexpectedly large number of Fed officials projected a more restrictive path than many investors had hoped for.

And Warsh himself repeatedly emphasized the Fed's commitment to restoring price stability. He made it clear that bringing inflation back to the Fed's 2% target remains his top priority.

The message was unmistakably hawkish and perhaps a bit of a surprise. After all, Warsh was appointed by President Trump, who has not been shy about his preference for lower interest rates.

Instead, the man Trump described as straight out of "central casting" for the position focused on inflation, credibility, and the need to deliver stable prices.

The market's reaction was understandable, but investors may be focusing on the wrong part of the story.

There are several reasons to believe the inflation outlook is actually improving.

In the near term, falling oil prices are reversing many of the supply-side pressures that drove inflation higher earlier this year.

And over the longer term, Warsh repeatedly highlighted the importance of productivity growth, announcing a new Federal Reserve task force dedicated to studying productivity and AI.

While the market may have wanted more signs of immediate rate relief, investors with a longer time horizon should be most concerned with the forces that ultimately determine inflation itself.

Those forces increasingly appear to be moving in the right direction.

Warsh was not ready to declare victory on the inflation front but was very clear about his intention to defeat it.

The good news for investors is that falling energy prices and rising productivity may ultimately make that task easier than many currently expect.

Iran shock reverses

To understand where inflation may be headed, it is helpful to remember what drove it higher in the first place.

As fears grew that the Strait of Hormuz could face prolonged disruptions, oil prices surged. Energy markets suddenly had to contemplate the possibility that a meaningful portion of the world's oil supply could become more difficult—or more expensive—to transport.

The impact extended far beyond the gas pump.

Higher energy prices flowed through transportation networks, shipping companies, airlines, manufacturers, and retailers. As costs rose, businesses throughout the economy were under pressure to increase prices to protect profit margins.

But today, the oil picture looks quite different.

Markets are just now digesting the Memorandum of Understanding that has been reached between the U.S. and Iran.

While the political and security dimensions of the agreement have attracted a fair amount of criticism, much of it based on concern that it is too favorable towards Iran, the impact on global oil supply is indisputably positive.

A week ago, crude oil was trading above $90 per barrel, and the outlook for resolution in Iran was more ambiguous.

Today, oil has descended into the mid-$70s. The preliminary deal with Iran not only means the Strait of Hormuz will reopen, but Iran will potentially be able to sell oil into global markets without U.S. sanctions.

WTI Crude Oil - $/Barrel

(Year to date)

One of the more concerning elements of the news flow coming out of the Fed today was that nine out of 19 Fed officials indicated that they expect one rate increase by year-end. Back in March, none expected an increase.

But developments in Iran have been fast-moving. These expectations—formulated and communicated in recent weeks—may not fully take into account late-breaking news.

When oil is fluctuating between $90 and $110, this is a much different inflation backdrop from oil trading in the $70s. If the conflict is truly over, the inflationary impact of lower oil will be undeniably positive.  

Building energy resilience

Oil that has been trapped in the Persian Gulf will get released into world markets. That is the short-term story behind falling energy prices, but there is likely to be a long-term benefit as well.

One of the clearest lessons from the conflict was that the global economy is too dependent on a handful of critical energy chokepoints, particularly the Strait of Hormuz, through which roughly one-fifth of the world's oil supply passes.

That realization is accelerating investment in alternative transportation routes.

Saudi Arabia already operates its East-West Pipeline, which transports crude from the Persian Gulf to the Red Sea, bypassing Hormuz entirely. The UAE has the Abu Dhabi Crude Oil Pipeline, which allows oil exports to reach the port of Fujairah on the Gulf of Oman without passing through the Strait.

Both systems proved their strategic value during the crisis and are slated for future expansion.

Meanwhile, there is the potential to revisit long-discussed projects connecting Iraqi oil fields to export terminals on the Mediterranean and Red Seas.

Additional investments in storage facilities, export terminals, and LNG infrastructure are also becoming more attractive as governments seek to improve energy security. Strategic reserves will likely be expanded over time.

These projects require substantial capital upfront, but they ultimately increase supply flexibility and reduce the risk that future geopolitical disruptions trigger major energy price spikes.

While a deal with Iran could be long-lasting, keeping the Strait of Hormuz open going forward, the Gulf states now understand the urgency of investing more heavily in alternative paths to market.

Ironically, the Iran conflict may ultimately leave behind a more resilient global energy network—one that helps reduce future energy-related inflation pressures.

The AI productivity boom

Heavy investment in energy infrastructure could become a structural factor that helps keep down energy prices specifically in the year ahead. The ongoing wave of capital investment in AI, on the other hand, has the potential to shape the inflation outlook in an enduring way across a much broader set of industries.

Warsh repeatedly highlighted the importance of productivity growth and announced the creation of a new task force—Productivity and Jobs in an Era of Transformation—dedicated to studying productivity and artificial intelligence.

Productivity is one of the most powerful forces influencing living standards, economic growth, and inflation. When workers become more productive, businesses can produce more goods and services without a proportional increase in labor, capital, or raw materials.

Costs fall, output rises, and wages can increase without generating the same inflationary pressures that tend to accompany tight labor markets.

Historically, many of the greatest periods of economic prosperity have been driven by productivity-enhancing innovations.

The railroad transformed transportation. Electrification revolutionized manufacturing. The internet reshaped communication and commerce.

AI has the potential not only to join that list but surpass prior technological waves in its impact.

Businesses are already using AI to accelerate software development, automate administrative tasks, improve customer service, optimize logistics networks, and increase manufacturing efficiency.

The benefits may appear incremental at first, but productivity gains compound.

As these technologies spread throughout the economy, companies can deliver more output with fewer inputs. Resources are allocated more efficiently. Bottlenecks are reduced. Costs decline.

In many ways, productivity is the ultimate antidote to inflation.

While inflation occurs when too much money chases too few goods and services, productivity expands the economy's ability to produce those goods and services in the first place.

The formation of a task force sounds academic. But it allows Warsh to influence the culture of the Fed, reshape the conversation, and get Fed officials to focus on new variables and sources of information.

What I believe is if we do our job, we can make strong growth, low prices and strong employment, mutually compatible…. Strong productivity-led growth is not something that we fear, but something we embrace. - Kevin Warsh (6/17/2026)

Warsh’s predicament

The fact that Trump has been so aggressively in favor of rate cuts leaves the new Fed Chair in a somewhat tricky spot.

If he were to come out in his first meeting expressing an intense and imbalanced desire to cut rates, he would appear exactly as his critics have described him—a rate-cutting lackey of the President.

The reality of his role as Fed Chair is that he does not have unilateral control over monetary policy. He is ultimately just one of 12 voting members of the Federal Open Market Committee (FOMC) at any given time.

Like any Fed Chair, in order to be successful, he needs to have credibility across the institution and put himself in a position to guide its thinking and decision-making.

He may have leaned a little hawkish today, but this is not completely out of character. He was a Fed Governor previously and has historically been known as an advocate for price stability.

Reforming the Fed

Warsh, in our view, is playing the long game.

And as he mentioned repeatedly throughout the press conference, the actual data is what matters when it comes to monetary policy, not the projections and guesswork of Fed officials.

This is exactly why he wants to downplay the role of “forward guidance,” the practice of telling the market where the Fed is headed next.

With energy prices rapidly retreating and AI productivity gains beginning, the flow of data in the months and quarters ahead has the potential to be be quite favorable.

Warsh’s tenure is starting at the tail-end of what now appears to be a relatively short-lived but impactful energy crisis that led to an unfortunate setback on the inflation front.

His priority now is not to promise the market rate cuts, as much as the market may like that. It is to lay the groundwork for a return to the kind of tech-driven, high-growth, low-inflation environment that characterized Trump’s first term and prior periods of strong stock market performance.

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