WASHINGTON, DC – APRIL 21: Kevin Warsh, U.S. President Donald Trump’s nominee for Chair of the Federal Reserve, prepares to testify during his Senate Committee on Banking, Housing, and Urban Affairs confirmation hearing in the Dirksen Senate Office Building on April 21, 2026 in Washington, DC. President Trump nominated Warsh, a former member of the Federal Reserve Board of Governors, to replace Jerome Powell amid bipartisan concerns over the Justice Department’s criminal investigation into the central bank’s current leader. (Photo by Andrew Harnik/Getty Images)
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While Fed Chairman Kevin Warsh has their undivided attention, he can helpfully remind left, right, libertarian, and in between that market prices are a global endeavor. Translated, the Fed couldn’t fight what economists incorrectly deem inflation even if it wanted to.
Think the Apple iPhone given its ubiquity in the U.S. and around the world. What’s perhaps not said enough is that the iPhone is an effect of parts and ingenuity sourced by Apple on six different continents. That’s why it’s so cheap. Absent Apple’s remarkable ability to spread its production across myriad hands and machines around the world, the iPhone wouldn’t exist and it wouldn’t because it would be too expensive such that the network effect economics of producing it would be non-existent.
Please remember this as economists and pundits claim rising prices are evidence of inflation. They haven’t a faint clue. Not only does a rising price entail a falling price as is, to focus on so-called “monetary policy” when trying understand the meaning of prices is to completely misunderstand what’s pushing prices downward in the first place. What matters is not what the Fed does, but what well-run companies like Apple do in spreading production around the world. Just as Henry Ford was only able to make cars for “the great multitude” insofar as his factories enabled enormous amounts of labor division, so is Apple able to put supercomputers in our pockets for the same reason.
Warsh should then tell his rapt audience that they didn’t fully grasp what he meant about the price impact of AI. While the addition of billions and trillions of mechanized hands will push human and machine productivity skyward on the path to staggering amounts of low-cost abundance, the wealth-creation implied in the latter foretells enormous leaps in the cost of hotel suites, massages, golf times, and countless other consumptive items, some that don’t yet exist. See above. Just as a rising price entails a falling price, so do falling prices entail rising prices.
What’s important is that the Fed can do nothing about this. Think the odd focus of economists on the Fed funds rate as alleged evidence of “tight” or “easy” money. How could so many well-educated people be so dim, and their professed knowledge be so at odds with reality?
Back to reality, and assuming an AI-driven surge in productivity, credit flows into the United States in search of the latter will soar without regard to Fed fiddling. Never forget that credit is produced by lender and borrower, the lender through excess resources born of rising production, and the borrower as an effect of expected productivity increases that rate credit (most often equity, but sometimes the loan type) in rising amounts.
Warsh can add that some appreciate his disdain for the Phillips Curve, as they should, but that he had to establish that disdain ahead of productivity leaps that have the potential to make the past appear slow by comparison. Just as important, he should add that no amount of Fed intervention can shrink credit as is. See the previous paragraph. Since it’s produced, and measured in dollars, short of the productive placing their dollars in coffee cans, their surplus will be loaned and invested. Credit is never idle.
Lastly, Warsh should inform the uninformed that inflation is a shrinkage of the monetary unit, higher prices the occasional effect. He should then add that the dollar’s exchange value has never been part of the Fed’s portfolio, so the Fed really can’t fight inflation. To believe otherwise is to pair a discredited Phillips Curve with discredited Keynesian theory that falsely says money saved is money removed from the economy.
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