Fed rate hikes during oil shock would harm economy; Powell's shadow majority threatens sound policy
Source: "PETER NAVARRO: Powell and his Fed allies could box in Warsh and hammer growth | Fox News." May 24, 2026. www.foxnews.com
The Gist
Navarro argues the Fed shouldn't raise interest rates when oil prices spike because rate hikes can't solve oil supply problems and only make economic damage worse. He warns that Jerome Powell, despite losing the Fed chairmanship, still has enough allies on the Fed Board to force harmful rate hikes on new Chair Kevin Warsh.
Conclusion
The Federal Reserve should not raise interest rates in response to the current oil-driven price increases, and Jerome Powell's continued presence on the Fed Board creates a dangerous shadow majority that could force harmful rate hikes despite Kevin Warsh being the new Fed Chair
Premises
- Oil shocks are supply-side problems that the Fed cannot solve through monetary policy - the Fed cannot produce oil, reopen shipping lanes, or refine gasoline
- Historical precedent shows successful Fed chairs (Greenspan in 1990, Bernanke in 2008) cut or held rates steady during oil-driven price spikes rather than hiking
- Rate hikes during supply shocks harm the economy by adding credit constraints to energy cost pressures, hitting vulnerable sectors like housing and manufacturing
- Current bond market conditions already provide monetary tightening with 30-year Treasury yields above 5% and 10-year yields above 4.5%
- Powell and three Biden appointees can form a four-vote majority on the seven-member Fed Board, potentially controlling policy despite Warsh being Chair
- Recent inflation data (core CPI at 2.8%, core PPI at 4.4%) does not justify treating energy-led price increases as a demand-side emergency requiring rate hikes
Assumptions
- Oil price increases are primarily supply-driven rather than demand-driven
- The Fed's dual mandate of price stability and maximum employment should guide policy decisions
- Historical Fed responses to oil shocks provide reliable guidance for current policy
- Bond market vigilantes are already providing sufficient monetary tightening
- Powell will use his Board position to oppose Warsh's preferred policies