Want Fed Independence? Cut Government

Kevin Warsh's Fed surprised markets with a rate hike, defying critics who expected him to be a Trump stooge. The Fed's dot plot suggests another increase this year, likely in December.

This move wasn't forced by inflation, as energy prices are the sole driver. Excluding energy, inflation is at its lowest since COVID. M2 growth also remains subdued. Warsh is proving more independent than his predecessor, Jerome Powell, who accommodated Biden's spending.

Treasury Secretary Scott Bessent appears to have helped Trump accept Warsh's independence, drawing a parallel to Reagan's support for Volcker. True Fed independence requires a government that stops interfering with the economy through excessive regulation and spending. While Trump's administration has reduced spending, it remains too high, pressuring the Fed to keep rates low to finance debt.