The Fed Is Facing An Impossible Problem | Judy Shelton & Thomas Hoenig
A Special Report with two of the most informed Fed-watchers
This year so far has been full of transition & challenge for the Federal Reserve, arguably the single most influential institution for the global economy.
The Chairmanship has been passed on from Jerome Powell to Kevin Warsh, who appears to want to chart a more hawkish and limited scope for the Fed.
Inflation remains stubbornly above the 2% target. And elevated oil prices resulting from the US war with Iran are a new inflationary force outside of the Fed's control.
Meanwhile bond yields are rising as former foreign buyers of US Treasurys, like China and Japan, are now actively reducing their net holdings. That doesn't please the Administration that just put Warsh in his seat.
So what is the Fed most likely to do in the remainder of 2026?
Is it well-positioned to handle these challenges of higher inflation and higher yields?
Or are events slipping out of its control?
For answers, we are incredibly fortunate to be able to turn to today's remarkably qualified panelists.
Dr Judy Shelton is an economist, author, Senior Fellow at the Independent Institute and the author of Good as Gold How to Unleash the Power of Sound Money. She's a particularly qualified expert on today's topic because she served as an economic advisor to President Trump during his first term, and was nominated by him in 2020 for the Federal Reserve.
And Dr Thomas Hoenig is the former CEO of the Kansas City Fed, a former voting member of the Federal Open Market Committee, a former director of the FDIC, and now a Distinguished Senior Fellow at the Mercatus Center.
To find out why they think the Fed is currently facing an “impossible problem”, click here or on the video below:
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Adam’s Notes: Judy Shelton & Thomas Hoenig (recorded 8.4.26)
EXECUTIVE SUMMARY:
Kevin Warsh’s early leadership draws strong approval from both guests for its reform-minded task-force approach and preference for letting markets set the cost of capital rather than relying solely on committee-imposed rates, though both stress that structural pressures from massive deficits, sticky inflation, and external shocks will severely constrain him.
Foreign central-bank behavior—especially Japan’s need for dollar liquidity and the broader shift of former Treasury buyers into net sellers—creates a difficult dilemma for the Fed: accommodate via facilities and risk further monetization, or refuse and push yields higher sooner.
The U.S. debt trajectory ($2 trillion annual deficits) is viewed as the core problem; Hoenig outlines three paths
