Title: Warsh is Wrong About Inflation Show: Heresy Financial (YouTube) Guest: Joe Brown (founder, Heresy Financial) — monologue, no host or guest Date: 2026-09-07 URL: https://youtu.be/sP8pOFk2BVA Length: 13:37 (817s) Note: Auto-captions, cleaned. Fillers (um/uh/you know/verbal "like") removed and stutters collapsed; wording otherwise verbatim and every (mm:ss) cue kept in place. Two sponsor reads for Brown's own free "portfolio stress test" funnel (~02:25-03:50 and ~12:36-13:35) have been REMOVED — the timestamp lines are retained with a [sponsor segment removed] marker; that material is summarized in the hub's "The product" section instead. Caption name fixes applied: "Kevin Walsh" / "Worsh" / "WSH" = Kevin Warsh; "Jacksonhole" = Jackson Hole; "job openings and labor turnover summary" = the JOLTS report.
00:00 Kevin Warsh just gave his first speech as chairman of the Federal Reserve at Jackson Hole. And I don't think he knows what he's doing. Now, I get it how arrogant that sounds. The hubris of just some random guy on YouTube saying that the Federal Reserve chairman is wrong or confused about the way that inflation and the economy works.
00:21 But we've had a few bozos in this position in the past and so they are not above being wrong entirely about the effects of their own monetary policy decisions. So there are a couple of key points that he made in this speech. I'm going to go over my opinions about whether he's right or wrong about them. Now the first thing that I'll mention is that Warsh talked about the economy, the stock market, AI, and jobs.
00:46 The main takeaway being that the economy is actually surprisingly resilient, surprisingly strong. And to this point, I would pretty much agree. Right now, earnings growth for the S&P 500 is over 47% year-over-year. That is the fastest growth rate in earnings since 2021. In fact, earnings for the S&P 500 are growing faster than the prices for the S&P 500.
01:11 And so from a corporate profit perspective and an asset price perspective, those two parts of the economy are doing extremely well. One metric that I think is interesting that he did not talk about, but I think it's worth mentioning is the average hourly earnings of all employees. So you can see the lower arrow is one that I drew that shows the trend that hourly earnings were at prior to 2020.
01:36 Now obviously the cost of living has also gone up but there is a narrative that the cost of living, the price of groceries, cars, housing has gone up but wages have stayed the same. That is not actually true. And not only are wages much higher than they were from an absolute perspective, like dollars per hour, in 2020 they were under $30 per hour on average.
02:01 Now they're over $37 per hour on average, which is almost a 25% increase over the last six years. But the trend of growth in wages is also higher. It's not like there was a brief spike and the trend is now trending the same as it was before. The actual growth rate is faster now.
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03:50 Now, the next thing that I think does not get talked about enough at all is the opposite of unemployment, and that is job openings. In the most recent release of the JOLTS report, there were 7.4 million job openings. When there are 7 and 12 million jobs posted that are not being filled, it's safe to assume you can ignore unemployment statistics.
04:12 If you are unemployed, the fact that you do not have a job means you do not want a job. Sure, a lot of those jobs that are open may not pay the best, which means if you can get income from another source that you don't have to work for, you'll probably do that instead of going for the open job.
04:33 It also means that if that job requires you to have a skill that you do not currently have, you are unlikely to try and go get that skill in order to get that job. If the unemployment rate was high and there were no job openings, that would be a very, very bad situation, kind of like the Great Depression. Everybody wanted a job, nobody could get one.
04:51 But the situation is very different today. There are literally millions of jobs. Even if that number is inflated, even if it's looking at job openings where the company is just really not wanting to hire somebody, but they have a job opening posted just to make it look like they're hiring, there's still millions of jobs that are not being filled.
05:08 And so Kevin Warsh's analysis that the economy is strong and could actually survive through some financial tightening, through the conditions getting tighter instead of easier — I think that's safe to say he's probably right about that. All right. So the next thing is that Warsh is driving the bond market whether he wants to or not.
05:26 And this is something he's talked at length about, that he does not want the market to look at what the Fed is saying, look at what the Fed is doing, trying to anticipate that and making decisions about buying and selling and interest rates moving based off of what the Fed is doing.
05:40 He says he wants the Fed to be kind of like a silent player off on the sidelines that's responding to what the market is doing rather than the opposite being the main driver and the market responding to what the Fed is doing. The problem is that's just not possible when you control the money supply. When you're doing QE or QT and you have this big balance sheet, when you are controlling short-term interest rates by raising or lowering them, you are in control of the economy to a much larger extent than every individual free market player. The reason why is because you
06:09 literally control the cost of money, the price of capital. Now, we all know basic economics 101 that price controls are disastrous. If you have a committee, an agency, that is set over setting the prices of something like bread or gasoline or water, that's going to result in disaster, a misallocation of resources, those things not getting where they need to go.
06:31 That price no longer signaling scarcity or abundance. It's always and everywhere a complete disaster anywhere it's ever tried. However, when it comes to the cost of money, everybody just loses their minds and thinks, "Oh yeah, that'll work out great." But that's what the Federal Reserve controls, is the cost of acquiring money.
06:50 That's what interest rates are. And money is not just some obscure secondary side thing in the economy. It is literally half of every transaction. Whenever you buy or sell any good or service or your time, you are transacting with the dollar on the other side of that. Which means that in a very real way, the Federal Reserve itself controls or exerts a high amount of control over every transaction that happens in the entire economy.
07:15 And so when he talks, the bond market moves. So whether he wants the bond market to be watching him and watching the Fed and moving based off of what they do, whether he wants that or not, he's going to get it because he is the main controller. He is the main input. He is the main driver. So, of course, the bond market's going to be watching what he does and says. Just saying he doesn't want the bond market to do that anymore and saying, "Hey, he's no longer going to give forward guidance and not going to communicate what they're thinking
07:40 ahead of time anymore." That's not going to change that. It's just going to mean more volatility of the market responding more in real time to what they do rather than in advance. So, it doesn't get rid of the bond market playing what the Fed is doing. It just concentrates it into a shorter amount of time.
07:56 And then finally, he reiterated his vow to get inflation down to their 2% target. And he specifically said short-term rates are the tool. He said other tools that the Federal Reserve has should be reserved for crisis only and be used extremely sparingly. They should not be used in regular times. I think he's mainly referring to the balance sheet there, quantitative easing, quantitative tightening, that sort of thing.
08:15 He's saying he just wants to get rid of that, bleed the balance sheet off, and just focus on short-term interest rates. The problem with that is that's not the main tool that can address inflation. You can hike rates at the short end all you want, but if it doesn't do anything to the actual creation of the money supply, all you're doing is making production more expensive and so inflation will persist.
08:34 On this chart, you see two lines. The blue line is the money supply, specifically the growth rate year-over-year in the money supply, and the green line shows prices, the CPI growth rate year-over-year. You can see there is a very very tight correlation between the rate of growth in the money supply and the rate of growth in prices. Further than that, since 2023, the money supply has been increasing.
08:54 Again, zooming in, you can see that it's just moving up and to the right. So, why are we surprised that inflation is sticky and sticking around and higher than what everybody wants when the money supply is increasing? Now, that's not the only contributing factor. The other side to this is the growth of goods and services.
09:12 If you have an economy where all the stuff stays the same, the quantity of all the goods and services stays the same, but the money supply increases, you're going to get price increases. The way to think about this just really easily is let's say tomorrow the money supply doubles. For every $1 you had before, now you have $2. You had $10,000 in your checking account, now you've got $20,000.
09:30 You'd be much less likely to go into work for the exact same dollar amount because you'd say, you know what, no, I've got so much more money now that I'm not willing to work for that same price. If you want to convince me to come in to do the same amount of work, you're going to have to pay me more. And that would happen across the board.
09:45 I'm not going to be willing to sell a pizza for seven bucks anymore. I'm going to demand 14 bucks for it because if I wanted seven bucks, I already have it now. So almost immediately, overnight, it would be uneven and distributed unequally. But pretty much immediately, prices of everything, wages and goods and services would pretty much double.
10:02 You have the same amount of stuff as you did before because it happens overnight. Double the money, prices skyrocket. Now, let's say the opposite thing happens: the money supply stays the same, but the goods and services increase. So, let's say the total number of cars in existence doubles, the total number of houses double, the total number of all of the goods and services — like hypothetically the total amount of labor, we just get a robotic army fleet that can do all the jobs that we do, just gets there overnight immediately. And the
10:29 money supply stays the same. Immediately, prices of everything would collapse. Wealth increases. The supply of goods and services, the stuff that we all want, doubles overnight. Suddenly, people would be willing to sell it for less. I don't need two houses. I'll give up one.
10:45 Maybe I had one house that was worth $500,000. Now, I have two houses. I'd be willing to sell one of them for $200,000 or even $100,000 because now I still have a house and I have some extra money, because the supply of everything becomes so abundant. The scarcity goes down. The cost of everything goes down. It takes less dollars to get the same amount of stuff as it did before.
11:03 And so you've got both of these things happening in an economy at the exact same time. You've got the money supply growing. You've also got the total stock of wealth growing. It's the ratio between that that determines prices overall. And that's why there is such a tight correlation between the prices of goods and the money supply growth.
11:19 When the growth of the money supply exceeds the growth rate of all the stuff, prices are going to go up. And so if all you do is raise interest rates, but the money supply keeps on expanding at a faster pace than all the goods and services, then all you do is make debt more expensive and everything else continues to get more expensive as well.
11:36 And part of the result of that is a little bit of a snowball effect. When debt gets more expensive, financing production gets more expensive. It's harder for companies to hire. It's harder for companies to borrow and invest in research and development. And it's harder for companies to invest in growth and building new productive capacity, which means that it's harder for the stuff to grow.
11:53 It's harder for the stock of wealth to get bigger faster. And so by raising short-term interest rates while the money supply still grows, you can make inflation worse. And so if you want the price of goods and services to stop increasing so rapidly, you need to do things to make the money supply stop increasing so rapidly while at the same time enabling production to continue to grow at the same pace or ideally even faster.
12:17 In other words, you need to get the boot of the government off the neck of the private economy. Deregulation, government spending down, allows free market interest rates to go down, which allows cheaper production, which allows more stuff, which allows lower prices, and meanwhile, the money supply doesn't grow nearly as fast.
12:36 That's the solution. That's the key. And I think no matter how much Warsh says that they vow to reach their 2% target, they're not going to be able to do that by just increasing short-term interest rates without causing a massive, massive, massive crash. [sponsor segment removed — Heresy Financial "portfolio stress test" promo]
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13:18 [sponsor segment removed] So, I'm hoping that it doesn't get there, but we'll see.
13:35 As always, thank you so much for watching. Have a great day.