I watched Kevin Warsh talk about the Federal Reserve with Peter Robinson, and the useful sentence is the simple one:
Inflation is a choice.
That sounds too clean. Too brutal. Too convenient.
But it is the right starting point.
We have spent the last few years pretending inflation was caused by everything except monetary policy. Putin. Supply chains. COVID. Energy. Ships in the wrong harbour. Factories in the wrong country. Consumers buying too many sofas. Pick your villain.
All of these things can move prices.
That is normal.
A tomato costs more when the harvest is bad. A flight costs more when oil jumps. A printer cartridge costs more because, frankly, printer companies appear to have been designed by people who hate civilisation.
That is a price change.
Inflation is when the price change becomes the atmosphere. When every household, every company, every contract, every salary negotiation starts behaving as if the money itself is losing shape. That is the moment when the central bank has one job.
Hold the line.
Warsh's criticism of the Fed is interesting because it avoids the usual performative rage. He wants repair over theatre. He served there during the 2008 financial crisis. He saw the machine from the inside, in the room where the polite language ends and everyone quietly realises the system might actually break.
And he supported the emergency response.
That matters.
The serious critique lands after 2008, when the Fed kept acting as if every season was still an emergency.
The Emergency Button
A central bank should have an emergency button.
When markets freeze, when buyers and sellers disappear, when the most important financial pipes in the world stop carrying water, the Fed has to show up. That is why it exists. It provides liquidity when nobody else can.
In 2008, that made sense.
The problem starts when the emergency button becomes part of the furniture.
Quantitative easing was supposed to be the glass box you smash when the building is on fire. Instead, it became a policy habit. QE1 became QE2. Then QE3. Then COVID arrived, and because the Fed had already normalised extraordinary intervention, the next intervention had to be even larger.
This is how institutions drift: through small justifications that sound reasonable at the time.
Markets are fragile.
Growth is not strong enough.
Inflation is below target.
Asset prices look fine.
Congress needs help.
The next thing you know, the central bank balance sheet has gone from something close to boring to several trillion dollars, and everyone has learned a dangerous lesson: spending does not hurt if somebody powerful keeps buying the debt.
Lovely.
Now dear Congress, please stop pretending you discovered gravity only after falling down the stairs.
The Fed Made Spending Easier
Warsh is careful here, and rightly so. Congress deserves plenty of blame. Presidents too. Deficits do not write themselves in the night. People vote for them, sign them, defend them, and then go on television to look concerned.
But the Fed helped create the weather.
When the central bank buys huge amounts of government bonds, it tells the market that the water is warm. Come in. The most important buyer in the world is already there.
Congress still chooses to spend. The Fed made the visible cost lower. It dulled the pain signal.
This is the institutional failure.
Fiscal policy and monetary policy became too comfortable with each other. Treasury issues the debt. The Fed buys a lot of it. Politicians enjoy the room this creates. Markets enjoy the liquidity. Asset owners enjoy the ride.
The bill comes later.
It always does.
The bill comes through higher prices. Through higher interest expense. Through a government spending billions per day on debt service instead of defence, infrastructure, education, or anything remotely useful to the people who were told this would all be fine.
This is where inflation becomes moral, not just technical.
Inflation reaches beyond the chart. It hits the people with the least room to manoeuvre. If you own assets, inflation can be annoying and profitable at the same time. If you live from salary to salary, it is a private tax you never voted for.
That is why price stability matters.
It is boring for a reason.
The Great Moderation Was Not Magic
For roughly four decades after Paul Volcker broke the back of inflation, most people did not talk about prices very much.
That was success.
The highest compliment you can pay a central bank is that normal people forget it exists. No front page drama. No daily priesthood of interest-rate interpretation. Just a small group of serious people keeping the currency stable enough that everyone else can get on with building, hiring, saving, investing, and occasionally buying a coffee without running a macroeconomic model in their head.
Then came complacency.
Warsh's point is that the economics profession lost touch with the word money. That sounds absurd. Monetary policy without money is like football without a ball, but apparently if you add enough PhDs the ball becomes optional.
The Fed began to rely too much on models, too much on discretion, too much on the idea that clever people could manage the system from the cockpit.
This is where I think Warsh is strongest.
Warsh avoids nostalgia as policy. The answer skips the gold-standard cosplay, the Reagan museum tour, and the clean old world that never quite existed as beautifully as we remember it.
His word is restoration.
That is different.
Take the best purpose of the institution and make it fit the world we actually live in. Keep the emergency tools. Use them rarely. Make the reaction function clearer. Shrink the balance sheet over time. Separate the Treasury's job from the Fed's job. Stop letting monetary policy become the quiet enabler of fiscal cowardice.
Call it institutional hygiene.
Less glamorous. More useful.
Bitcoin as a Warning Light
I liked Warsh's answer on Bitcoin because it avoided the usual theatre.
He sees it as a signal.
Good.
When people buy Bitcoin because they no longer trust the dollar, policymakers should not spend their first hour mocking the people. They should spend at least five minutes asking why the signal appeared.
Bitcoin today is too volatile, too narrow, too weird to carry the full job of a national currency. As a market protest, though, it is useful. It says: we are watching the money printer, the debt, and the habit of calling each emergency temporary while building permanent machinery around it.
That signal should make central bankers uncomfortable.
Uncomfortable is healthy.
The Optimistic Part
The most important part of the conversation is that Warsh is still optimistic about America.
His optimism has ballast.
He is optimistic because the country still has the ingredients that matter: technology, capital, talent, risk appetite, immigration magnetism, deep markets, and a culture where smart people still try things before asking for permission.
He thinks productivity can surprise to the upside.
I agree with that instinct.
AI alone could drive a serious productivity cycle. Add energy, software, robotics, biotech, and a generation of founders who grew up with global tools in their hands, and the upside is real. The American economy has an annoying habit of performing better than its government deserves.
That is the hopeful part.
The dangerous part is that productivity can be wasted by bad institutions. Growth gives you room. It does not give you immunity.
If the Fed restores price stability, shrinks its footprint, and gets back to being boring, that room widens. If Congress rediscovers some adult relationship with spending, even better. Let us not get carried away. One miracle at a time.
Make It Boring Again
The Fed earns its place through trust.
Trust comes from doing the same difficult job well for a long time. Price stability. Clear responsibility. Emergency action when the house is burning. Retreat when the fire is out.
That last part is the whole game.
Institutions rarely fail because they lack power. They fail because they enjoy using it too much.
Warsh is right to call for restoration. A sound dollar is not a technical preference for central bankers. It is social infrastructure. It is the floor underneath every contract, salary, mortgage, investment, pension, and family budget.
Break that floor, and everyone becomes a macro trader against their will.
Fix it, and people can go back to doing something far more productive.
Their actual lives.