Analyst: Warsh's 'delegation of authority' is causing the Fed's decision-making mechanism to spiral out of control; October data suggests inflation may be temporary.

November 11 — Wellington-Altus strategy analyst James E. Thorne noted in his latest report that Warsh's original intent in canceling forward guidance and the dot plot, and allowing officials to freely express their preferences, did not bring about strict discipline; instead, it handed the microphone to the hawks. Irresponsible official remarks are dominating market expectations, leading to a lack of policy coherence. The central bank must clearly distinguish between the fading supply-side shock and persistent demand pressure, rather than letting the loudest voices dominate decision-making.

Take October CPI as an example: headline rose 0.4% month over month (below last month's 0.6%), while core rose 0.3% (unchanged from the previous reading). Trends matter far more than single-month fluctuations. Merely because the data came in 0.1 percentage point above expectations, Fed Governor Waller floated a 50-basis-point rate hike in December, which is clearly too reckless.

More critical is the internal structure of inflation. Services account for nearly 90% of core inflation, with housing contributing half of that; and owners' equivalent rent (OER) is essentially just an estimate, not what homeowners actually pay. The current housing shortage is by no means a "wage-price spiral"; aggressive rate hikes would instead push up construction costs and lock homeowners into their existing low-rate mortgages. This so-called "cure" will only worsen the illness.

At the same time, the energy shock is substantively fading. Faced with softening energy prices and declining labor costs, the Fed needs keen judgment, not reflexively tight policy. Forcing rate hikes against a backdrop of strong productivity is highly likely to turn a temporary inflation shock into an unnecessary economic recession.