Former NEC Director Gary Cohn: 'Kevin Warsh's Fed will look different than the Powell Fed'

Summary

Gary Cohn analyzes a 4.2% inflation print and a K-shaped economy where wages lag prices, slashing purchasing power for most Americans despite a strong labor market. He expects the Fed to stay on hold for the rest of the year and predicts Kevin Warsh's Fed will cut forward guidance, reduce data output, and shrink the balance sheet, while interest rate policy remains locked. He downplays AI-driven mass layoffs and notes consumer resilience is partly supported by tax refunds.

• Headline CPI hits 4.2%, while wages rise only 3.7%, eroding real consumer purchasing power.
• K-shaped economy persists: top earners drive majority of consumption, bottom 80% lose spending ability.
• Fed expected to remain on hold for the remainder of the year, no rate hikes.
• Kevin Warsh's Fed will differ: fewer projections, less data, gradual balance sheet reduction.
• Labor market remains strong with 750k new job openings; no AI-driven mass layoffs yet.
• Consumer spending supported temporarily by larger tax refunds, but forced trade-downs likely ahead.