The Wall Street Journal’s editorial board wants Kevin Warsh to be your scapegoat. In Trump’s Real Problem Is Real Wages, the board argues that August’s 3.4% inflation print proves the Fed Chairman needs “running room” — likely a rate hike next week — to drive inflation down to 2% and let real pay finally rise. The mechanism is worth naming plainly. Tariffs are a tax the board wants to keep. A rate hike is a cost the board wants to shift. The board needs the Fed to absorb the inflation tariffs are causing so the tariffs themselves never have to be defended. If Warsh tightens and the economy stumbles, the blame lands on the Fed, not on the tariff that started the fire. The board is not solving the problem of real wages. It is arranging for someone else to take the hit.
The board has the diagnosis of the disease partially right, and I will concede it so we are not arguing about the wrong thing. Real wages have stagnated. Core inflation has run above 2% for four straight years. The Fed does bear some responsibility for letting inflation expectations drift. Workers are right to feel the squeeze. The board’s diagnosis stops there. Its prescription is where the con lives.
Here is the part the board needs you not to examine too closely. A tariff is a tax. The government charges the importer at the port. The importer raises the shelf price. The worker’s paycheck buys less of that shirt, that washing machine, those kids’ shoes. Real wages fall — not because the worker is paid less in dollars, but because the dollar now buys less. Multiply that across a cart of imported goods and the monthly budget tightens. This is not a mystery about the Fed. It is arithmetic at the port.
The board treats inflation as though it were the kind a central bank can cure. Some inflation is. When the economy overheats — when everyone is bidding up the price of the same limited stuff with the same loose money — raising rates cools the bidding. But tariffs are not bidding. They are a tax inserted into the supply chain by the government. A rate hike does not lower the price at the port. It makes everything else — mortgages, auto loans, credit cards, business credit — more expensive on top of the tariff. It cures a disease the economy does not have.
The board’s own numbers prove it. Core inflation — which strips out food and energy — is 2.4% over the past year, the lowest since March 2021 and almost exactly where it sat in February 2020, before the pandemic. Unemployment is 4.1%, lower than the average of almost any decade since the 1970s. Asset prices are buoyant and the labor market is tight. These are the symptoms of an economy absorbing a supply shock while staying fully employed. They are not the symptoms of an economy that needs the brakes slammed. Slamming the brakes anyway is a choice, not a cure.
And here is what the board slides past. When the Fed raises rates, two things happen to a working family almost immediately. The variable rate on their credit card goes up. The rate they will pay on next year’s car loan goes up. The mortgage they cannot yet afford stays unaffordable, or the home equity line they were using to send a kid to college gets pricier. Then, six to eighteen months later, the slowdown the Fed wanted arrives: hiring freezes, then layoffs, then wage growth flatlines. The board calls this “running room.” I call it a pay cut — twice. The tariff takes the first slice. The rate hike takes the second. Both land on the same paycheck.
Now add the inflation the board’s target cannot touch. Housing costs are up roughly 30% since 2020. Home insurance has gone up faster. Healthcare premiums, college tuition, childcare — each of these has risen faster than the CPI basket the board cites, and none of them is caused by the demand a rate hike could cool. None of them responds to a tighter Fed funds rate. When you demand the Fed slam the brakes because inflation is too high, you are demanding that the nurse and the machinist absorb the tariff tax and the credit squeeze to hit a target the board treats as sacred — though even Jerome Powell has called the 2% figure “false precision.” What actually matters is whether prices are rising so fast that workers and businesses cannot plan. At 2.4% core inflation, they can.
The board’s whole framework is a conflation. Tariff inflation and demand inflation are different diseases with different cures. Demand inflation responds to rate hikes because the problem is too much money chasing too few goods, and the Fed can drain the money. Tariff inflation does not respond to rate hikes because the problem is a tax. The goods are not scarce because Americans are buying too much. They are expensive because the government chose to make them so. The board conflates the two so it can prescribe a rate hike — which fixes the one the economy does not have while compounding the one it does.
There is a deeper arithmetic the board would prefer you not consider. The real-wage problem did not begin with this inflation print. It began in the 1970s. Since then, productivity has roughly doubled. Median pay has barely moved. The gap between what American workers produce and what they take home is not a rounding error. It is the largest story in the economy. That gap did not disappear. It went to profits, to stock buybacks, to executive compensation, to the asset holders whose wealth the Fed’s low rates helped inflate. The board frames real wages as a Fed problem fixable by a rate hike. It is a distributional crisis forty years in the making. No rate hike reverses that. No rate hike gives back the forty years.
So what would actually help? Strip away the tariff that is taxing every imported good the working family buys. Break the concentrated services markets — daycare, healthcare, wireless, home repair, veterinary care — where a few firms set prices and wages at the same time and the worker has no alternative. Expand the earned income tax credit so low-wage workers keep more of what they earn without forcing employers to raise prices. Pass sectoral bargaining rights so workers in low-pay industries can negotiate against the employers who have been suppressing their wages for four decades. And build the kind of social insurance that lets a worker leave a dying industry without it being a catastrophe — the flexicurity the Danes have run since the 1990s, the bargaining coverage the Swedes take for granted. The board tells you Denmark is impossible. Denmark has 80% collective-bargaining coverage, a safety net that cushions layoffs, and wages that track productivity. The obstacle is not feasibility. The obstacle is that these policies work, and the board does not want workers to have them.
The board wants Warsh to hike rates into an economy that is not overheating, to prove a credibility that protects asset values and tariff policy while workers absorb the damage on both sides. The board is not defending real wages. It is defending an ownership structure that has been taking the difference between what workers produce and what they are paid for forty years, and it is asking the Fed to do the dirty work. The Fed is the scapegoat. The tariff is the tax. The board wants you to pay both and blame the man holding the mop.