The Next Market Risk Is Core Inflation

Adam Taggart | Thoughtful Money® Jul 6, 2026

Adam Taggart's takeaways

Top takeaway Opens by revisiting his guest's earlier call that the Fed would look through the inflationary impulse from the high oil prices caused by the Iran war, which pointed to markets becoming very bullish.
Points out that Warsh gave a hawkish 'whatever it takes' speech at the most recent Fed meeting but did not hike, and puts the U.S.-Iran MOU announced a few days earlier as the reason he did not need to move now.

Top takeaway Argues there is still material risk the Fed tightens monetary policy over the medium term, calling it the next one to two quarters, but says the policy rate is not the appropriate tool and the balance sheet is more likely to be used to target excess demand.
Says the Fed may tighten now to regain credibility on fighting inflation, which would leave it scope to ease policy later by much more than is currently priced in.
Assesses that Warsh and his FOMC colleagues made the appropriate choice to hold off on hiking a couple of weeks ago, buying time to separate the energy supply shock that has reversed materially in recent weeks from core inflation dynamics.
Says the drivers of the nominally hot economy theme he introduced back in April of last year, namely monetary easing, pro-cyclical fiscal stimulus, a nationwide deregulatory push and a tight labor market, are still there and still contributing upside to core and underlying inflation.
Frames the next trade as where sticky inflation settles: if the rate of disinflation is not acceptable to FOMC policymakers, he expects a totally different inflation conversation two to three months from now, once the energy price disinflation has run its course.

Top takeaway Assessed in the interview as having made the appropriate choice to hold off on hiking at the Fed meeting a couple of weeks ago, so policymakers could buy time to discern how much inflation was driven by the energy supply shock versus core dynamics.
Delivered a hawkish 'I'm going to do whatever it takes' speech at that meeting, framed as being about hiking as high as needed to tame inflation rather than about stimulating the economy.
Once the MOU between the U.S. and Iran was announced a few days before the meeting, is said to have had the ability to say he did not need to hike right now even though he was talking tough.
The view put to him is that he may tighten soon to regain credibility on inflation fighting, preserving the scope to ease policy later by much more than is currently priced in.