The Warsh Tracker

CPI is not the Fed’s preferred inflation gauge, but it is one of the most market-moving because it strongly shapes public perception and near-term policy expectations. A Warsh-led Fed would watch CPI closely while emphasizing whether the data reflect persistent monetary inflation or temporary price shocks — elevated CPI matters most when it begins to move inflation expectations.

Core CPI is often more useful for policy than headline CPI because it reveals whether inflation is becoming entrenched. A Warsh-led Fed would weight persistent trends over short-term food or energy swings; sustained improvement would signal inflation returning toward levels consistent with price stability and widen the Fed’s flexibility to support growth.

Among all inflation measures, PCE carries the greatest influence on Fed decisions — the Fed’s long-term objective is explicitly defined in PCE terms, making this one of the most important series in the entire tracker. Sustained progress toward 2% reinforces credibility, anchors expectations, and widens the room to support growth.

If a single metric best represents the Fed’s view of underlying inflation, it is Core PCE — often given the greatest weight when judging whether inflation is moving toward price stability. It aligns with a Warsh-style focus on persistent inflation and expectations rather than every short-term commodity swing; sustained improvement would most clearly signal the future direction of policy.

Though the Fed emphasizes PCE over producer prices, PPI offers an early read on inflation risks before they reach consumer data. Within a Warsh-style framework it helps separate temporary supply shocks from persistent pressure — and his emphasis on productivity means rising producer costs are not necessarily inflationary if firms offset them through efficiency or output gains. Best treated as an early-warning indicator rather than a direct policy trigger.

Within a Warsh-style framework, inflation expectations may be nearly as important as inflation itself: credibility depends on confidence that future inflation will stay stable. Rising breakevens suggest growing concern; stable breakevens signal confidence in the Fed’s ability to manage inflation. Because expectations can become self-reinforcing, policymakers watch T5YIE for early signs that confidence in price stability is weakening — anchored expectations reduce the need for more aggressive intervention later.

T10YIE is one of the clearest measures of long-term Fed credibility — the long-run success of policy depends on whether households, businesses, and investors believe inflation will remain stable. Anchored long-term expectations give the Fed room to respond to developments without risking credibility; rising expectations may signal markets doubting the Fed’s commitment, and could require tighter conditions to reinforce confidence and prevent expectations from becoming self-reinforcing.

T5YIFR is one of the clearest market-based measures of Fed credibility: current data describe today, while this reflects what investors believe the Fed will achieve over the long term. Anchored forward expectations let policymakers navigate temporary shocks without triggering a loss of confidence; rising forward expectations may indicate markets questioning the Fed’s long-term commitment, with knock-on effects for Treasury yields and financial conditions. It may be the single best market-based read on long-term credibility.

Consumer expectations are closely watched because they influence real-world behavior — if households expect rapid price increases, they may accelerate purchases and demand higher wages, contributing to future inflation. Within a Warsh-style framework, consumer expectations complement market-based measures: investors evaluate policy through markets, while consumers experience inflation directly. A significant divergence between the two can reveal inflation risks and the effectiveness of Fed communication.

Participation reveals the economy’s productive capacity and labor supply. Unlike unemployment, which measures tightness, it helps determine whether labor shortages are contributing to wage pressure and inflation. Within a Warsh-style framework it is especially important because it reflects the ability to grow through expanded labor supply rather than monetary stimulus — higher participation supports stronger growth without necessarily creating inflationary pressure.

Payroll growth is one of the clearest measures of labor demand and economic momentum. Strong gains indicate business confidence and expansion; weak growth may signal slowing demand and rising risk. Within a Warsh-style framework, payrolls are read alongside productivity and participation — strong hiring is most beneficial when supported by sustainable expansion, and payroll growth alone does not determine whether the economy is generating inflationary pressure.

Job openings are an important measure of labor-market tightness: a large number of openings relative to available workers can contribute to wage pressure, while declining openings may signal easing demand and reduced inflationary pressure. Within a Warsh-style framework, openings help assess whether growth is driven by genuine labor demand rather than monetary stimulus — and they often signal changing conditions before unemployment or payroll data.

The Quits Rate offers a unique view of labor-market confidence: because workers typically quit when opportunities are plentiful, it often leads changing conditions. Within a Warsh-style framework, a healthy rate can indicate a dynamic, efficient market that supports productivity by letting workers move toward higher-value opportunities. An excessively elevated rate, however, may contribute to wage pressure when demand far exceeds supply — so it serves as both a confidence measure and a potential imbalance signal.

Unemployment remains one of the most important indicators within the Fed’s dual mandate, though a Warsh-style framework may emphasize the quality and sustainability of employment over low unemployment as an objective in itself. Low unemployment is beneficial when supported by productivity, innovation, and expanding capacity — coexisting with stable inflation and rising living standards. Low unemployment driven by unsustainable stimulus or accompanied by rising expectations is a less favorable signal.

The spread gives policymakers insight into labor conditions the headline rate misses, highlighting hidden slack such as involuntary part-time work and marginal attachment. Within a Warsh-style framework it helps distinguish a labor market that looks healthy on the surface from one with underlying underutilization — a widening spread suggests productive labor resources remain underemployed even when headline unemployment is low, implying economic capacity may be greater than conventional measures imply. A narrowing spread signals improvements becoming more broadly distributed and a more efficient allocation of labor.

The Federal Funds Rate is the Fed’s primary policy lever: raising it tightens financial conditions, lowering it encourages borrowing and investment. Within a Warsh-style framework it remains the preferred tool — policymakers may emphasize letting interest rates perform their traditional role in allocating capital and communicating conditions rather than relying on extraordinary interventions. Because it influences virtually every other rate, it is the clearest expression of the Fed’s policy stance.

SOFR shows how monetary policy is actually transmitted into markets: the Federal Funds Rate reflects policy intentions, while SOFR reflects real conditions. Within a Warsh-style framework it is especially valuable as market-based price discovery — a healthy SOFR–Fed Funds relationship suggests markets functioning efficiently without extraordinary intervention, while persistent dislocations can signal liquidity stress or broader instability.

WALCL is one of the clearest measures of Fed intervention: expanding the balance sheet injects reserves, lowers yields, and increases liquidity. Within a Warsh-style framework, balance-sheet policy would likely be viewed more cautiously than in the post-2008 era — a smaller balance sheet and reduced reliance on QE align with a philosophy emphasizing market discipline, price discovery, and traditional interest-rate policy. WALCL gauges how active the Fed is in markets and how much policy relies on extraordinary accommodation.

M2 growth gives policymakers a broad measure of system-wide liquidity and financial conditions. The Fed doesn’t control M2 directly, but policy influences it through interest rates, bank lending, reserve conditions, and market dynamics. Within a Warsh-style framework, M2 is most useful as a measure of monetary momentum rather than a direct inflation predictor — sustained contraction may signal restrictive conditions and slowing credit creation, while rapid growth signals abundant liquidity that can support expansion but, if excessive, may eventually feed inflationary pressures. Because M2 captures liquidity created across the banking system, it complements balance-sheet measures like WALCL: together they separate the size of the Fed’s footprint from the broader availability of money and credit.

The Real Fed Funds Rate may be the single best indicator of the Fed’s true policy stance: nominal rates get the attention, but real rates determine whether policy is actually encouraging or discouraging borrowing, investment, and risk-taking. Within a Warsh-style framework, real rates are especially important because they emphasize monetary discipline and fundamentals over headline announcements — a positive real rate supports price stability and market-based allocation, while excessively negative real rates can distort investment and encourage speculation.

Mortgage rates are one of the clearest examples of policy transmission into the real economy. The Fed doesn’t set them directly, but its decisions move Treasury yields and broader conditions that determine mortgage costs. Within a Warsh-style framework, mortgage rates help evaluate whether conditions remain supportive of productive activity without extraordinary intervention — housing serves as an important test of whether policy is working through market-based mechanisms.

NFCI may provide the clearest measure of whether policy is successfully transmitting through the financial system. Within a Warsh-style framework, it helps evaluate whether capital remains available to productive borrowers without relying on excessive accommodation — healthy conditions support investment and growth, while excessively restrictive conditions impede capital formation. Because it captures the combined effects of policy, sentiment, and credit availability, it is one of the most important indicators in the tracker.

The Sahm Rule gives policymakers a timely measure of labor-market deterioration and recession risk, and labor weakness often plays a central role in policy decisions. Within a Warsh-style framework it is useful because it focuses on actual conditions rather than forecasts or policy expectations — rising values indicate weakness becoming significant enough to threaten growth. For policymakers balancing monetary discipline with stability, it offers an important real-time read on downside risk.

CFNAI gives policymakers a broad read on economic momentum relative to trend, unlike single-sector indicators. Within a Warsh-style framework it helps assess whether growth remains sustainable and whether productivity, investment, and labor conditions are supporting expansion without generating inflationary pressure. Because it captures multiple dimensions of activity, it serves as a valuable cross-check against individual indicators and a read on the overall effectiveness of policy.