I can't mind-read the president, but oil prices moved down very quickly and unexpectedly. Retail prices should move lower but it takes time—we have limited refining capacity. As a general rule, I don't like blaming companies for price gouging. In this case, I don't see it, so perhaps it is frustration.

That's correct. Earlier this year, prices were under $3/gallon—we were at a 4.5-year low. I thought we'd go to a 5-year low during peak driving season, but the Iran events reversed that. Hopefully we're past the worst, but it takes time to get raw material refined and distributed to consumers.

There's no way they're going to cut rates—they're going to raise rates in my view. Core PCE, overall PCE, CPI—all show 3- and 6-month rates of change well above 3%. Services inflation (stripping energy and housing) is close to 4%. That suggests workers may argue for higher wages as the labor market improves. The economy is resilient and dynamic, getting a huge thrust from last year's OBBB, but inflation won't come down short-term. The rise in inflation means real rates have shrunk, so the Fed will have to offset that by raising nominal rates.

The futures market is starting to price the possibility of a July move.

Kevin Warsh is a great pick—he'll be collaborative and try to persuade the committee. The last FOMC tally showed 9 of 18 wanted to raise rates this year. I originally thought we were in a disinflationary boom, but now we're in a boom with inflation pressure. The Fed will have to offset that to avoid bigger problems later. The president may not like it, but Warsh is smart enough to figure out a way to do what's best for the economy and the Fed's institution.

Kevin Warsh is right that AI will be hugely disinflationary in the long term, but there are similarities to the 1990s tech boom. Back then inflation was low and falling; now it's above target and at best moving sideways. The huge capex boom (12-14% growth in Q2) is pushing out demand for commodities and inputs, straining energy usage. It's adding to inflation because demand is outstripping supply. Over the next several quarters, I don't see how AI is disinflationary—I think it's quite the opposite.

It would be different. The war changed things—there will be residual supply-side pressure even with oil down for the next handful of months. It took the prospect of rate cuts off the table. This firm economy with inflation still tilted to the upside means the Fed has to do something.