ABU DHABI, UNITED ARAB EMIRATES – MAY 16: U.S. President Donald J. Trump speaks during a US-UAE Investment Forum alongside U.S. Secretary of the Treasury, Scott Bessent (R) at Qasr al-Watan, presidential palace of the United Arab Emirates, on May 16, 2025, in Abu Dhabi, United Arab Emirates. Trump is on the fourth and final day of his visit to the Gulf to underscore the strategic partnership between the United States and regional allies including the UAE, focusing on security and economic collaboration. (Photo by Win McNamee/Getty Images)
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It’s not now, nor has it ever been the Fed’s job to manage actual inflation. Yes, you read that right.
Yet consider the narrative that emerged from Jackson Hole about how Treasury secretary Scott Bessent had allegedly inserted himself where Treasury secretaries shouldn’t. As the Wall Street Journal’s Nick Timiraos explained it, Bessent is “breaking with his predecessors’ custom of not commenting on monetary policy,” particularly given his long-expressed view that “the Fed is too concerned about inflation.” Oh well, it depends what “inflation” you’re talking about.
Historically, inflation was one thing only: a shrinkage of the monetary unit. That’s the dollar.
Enter economists to pervert the definition. The Fed is the biggest employer of economists in the world.
The PhDs who gave us the monument to double counting that is GDP have similarly made a mockery of inflation. They don’t deem it a shrinkage of the unit, rather they view inflation as an effect of the “too much” economic growth. Which in a very real sense signals long-time Fed efforts to expand its own purpose by hijacking inflation.
Keep this in mind as conservatives claim Kevin Warsh Fed is targeting a “strong dollar.” By strong, they mean a dollar that’s rising against foreign currencies and stable versus gold. In other words, a “Biden dollar.” Look it up…But that’s a digression.
Back to the present, notable about the conservative narrative involving Warsh and the dollar is that opposite what they claim, Warsh has not commented on the dollar’s exchange value since taking over the Fed. Which is the crucial point. The dollar’s exchange value isn’t, nor has it ever been part of the Fed’s portfolio. Meaning, inflation has once again never been part of the Fed’s policy portfolio.
As anyone at the Fed would point out, Treasury is the dollar’s mouthpiece. Translated, it’s perfectly reasonable for Scott Bessent to talk inflation. Which brings us to the dollar.
It’s not just down against foreign currencies as the WSJ Dollar Index since 2025 indicates, the dollar is way down versus gold. Which means Bessent is getting the inflation he and President Trump want.
All of which makes it puzzling that Bessent’s commentary would be viewed as “pretty inconsiderate if not a slap in the face” by the economists interviewed by Timiraos. Actually, it’s not that puzzling. Economists once again think economic growth causes prices to rise.
In reality, a rising price signals a falling price as the tradeoffs that define economics remind us. Better yet, the surest sign of economic growth is falling prices precisely because the “growth” in economic growth is an effect of productivity advances that bring down the prices of formerly expensive goods.
Still, those who prosper based on achieving productivity advances naturally have greater wealth than before, only to drive up other prices formerly lower due to more subdued economic growth. In other words, as the price of long distance, smartphones, information technology, and so much else plummets, the price of hotel suites, Knicks tickets and K-12 tuition goes up. Economists view this progress as “inflation,” but again a rising price is a sign of falling prices, and vice versa.
Which is why Warsh can hardly complain about what Bessent is doing, other than if he rightly disdains the weak, inflationary dollar that Bessent is pursuing. As for “inflation,” for Warsh to claim that it’s his policy area at the Fed is for him to embrace the Phillips Curve that informs the views of economists at the Fed. But for one problem: Warsh believes it’s bogus. Rightly so.
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