Warsh's First Fed Meeting: Why Real Rates Are Still Negative

Kevin Warsh chaired his first Federal Reserve meeting this week. The decision matched expectations: no rate change. Economist Mark Thornton says the policy direction matters less than the structure. Thornton argued on the Mises Institute's Minor Issues podcast that the central bank remains a mechanism to keep government borrowing cheap and protect bank balance sheets while managing public expectations as inflation erodes real purchasing power. The tools have not changed. Trump's Lower Rate Push Faces Warsh Fed Hike Risk captures the tension between the White House and the Fed – a dynamic that is nothing new.

Real interest rates are already negative after inflation. Official rates hover near zero in real terms, Thornton said. That means borrowing costs stay suppressed, encouraging leverage across stocks and data-center buildouts. Thornton pointed to capital spending on AI and data centers, alongside rising government debt and stock-market leverage, as signals that the economy runs on cheap credit rather than genuine productivity. The current building boom in AI infrastructure mirrors past peaks, Thornton noted, invoking the Skyscraper Curse – the pattern where massive construction precedes a downturn.