LBS Professor: Fed Regime Change, UK Productivity Shocks, and Inflation Drivers (with Tom Keene, Paul Sweeney)

Vania argues the Fed under Kevin Warsh is undergoing a regime change to regain control over inflation, using new tools like reserve requirements. High stock valuations are a key inflation driver via wealth effects. The UK has suffered from negative productivity shocks (financial crisis, Brexit) and high taxation, making it less competitive than the US. Deglobalization contributes to inflation but is not the main issue yet.

explicit

RUT

Oil

Metals

USD

London Business School 3.0
Business School
Vania Devakova 8.0

LBS Professor: Fed Regime Change, UK Productivity Shocks, and Inflation Drivers (with Tom Keene, Paul Sweeney)

ndx

The higher the stock market is, the more demand there is... getting the stock market under control is not something that is easy to do or he might be willing to do.

yields

The Fed needs to regain control over inflation... even if you hike interest rates... you might need to hike by a lot.

1 calls

+10

slightly better than random

5/7/2026 7:29:06 PM	medium term up	20 days later	+2.09%	+2.09%

Asks if we are moving to a higher inflation regime, losing the 2% target.

Tom Keene
Vania Devakova

We are in the beginning of a regime change where the Fed needs to regain control over inflation to prepare for fiscal dominance.

Kevin Warsh's first speech emphasized regaining control over broad money supply. High stock valuations drive inflation via wealth effects on high-income consumers.
Asks about the divergence between US and UK economic growth.

Paul Sweeney
Vania Devakova

UK has been hit by negative productivity shocks (financial crisis, Brexit) and high taxation, making it less competitive than the US.

Pound never recovered after the financial crisis. US benefits from innovation and attracting talent.
Asks if deglobalization structurally pushes global inflation higher.

Paul Sweeney
Vania Devakova

Deglobalization contributes to higher inflation, but the global economy has remained resilient. Tariff rates are not yet high enough to be the main issue.

Firms have absorbed some impact by lowering markups in competitive sectors.
Asks if the Fed will just have to wait for data like mere mortals.

Tom Keene
Vania Devakova

The Fed will use completely new tools, pushing unconventional monetary policy to a new level, including reserve requirements to control money supply.

Warsh favors the old regime of required reserve ratios. More tools are useful but not easy to implement.

SignalTube

markets at a glance