Monthly Archives: August 2026

Markets and Refs

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Greg Ip has a problem with Kevin Warsh’s so-far performance as the new Fed Chair.

Warsh’s analogy of the Fed simply calling balls and strikes, borrowed from future Supreme Court Chief Justice John Roberts, doesn’t work. The Fed isn’t a neutral umpire, it is the most important player in the game.

I have a problem with Ip’s problem. He went on.

Markets respond not just to data but how they think the Fed will respond to data. Investors plug each new bit of information into the Fed’s assumed “reaction function,” which then spits out the appropriate interest rate.

That’s part of what needs to change: “markets”—which is to say investors and business management teams—need to respond to the actual economy, not what one or another arm of government (however independent or not that arm might be) is doing. They need to stop playing the ref so much and work from the economy a whole lot more. It’ll take a bit for them to learn that and then how to do that.

The Fed doesn’t have a role refereeing the markets, in any event. The Fed’s job is to maintain price stability and employment stability, which it does by setting its benchmarks at levels consistent with its long term inflation goal. Its role does not include manipulating the market’s response to those benchmark rate moves.

Still Just Love Taps

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In response to Iran’s “surprise” attacks on US forces in Jordan, the US answered with a powerful response.

US forces carried out a “heavy wave” of strikes, attacking dozens of targets, including military command centers, missile and drone facilities, coastal surveillance and defense sites, and maritime capabilities, said US Central Command after the strikes were completed. “The strikes aimed to further diminish threats posed by Iran and its proxies to American forces, commercial shipping, and neighboring Gulf countries,” the command said.

And President Donald Trump (R):

We are going to be hitting them very hard because it’s our turn.

This is nothing but a few wholly inadequate love taps, though, to use Trump’s on phrase. His dislike for the killing and destruction war causes is well known, but here he’s letting it cloud his judgment.

The only way to diminish threats posed by Iran and its proxies to American forces is to destroy those threats’ physical capability to act on their enmity. If we know where those targets, those command centers, missile and drone facilities,… are, we need to hit and destroy all of them, in rapid sequence if not simultaneously, not just bang some of them in onesies and twosies strikes. The terrorists must be completely disarmed, as many of their—now IRGC—leadership killed as we can reach, and the surviving leadership blinded by eliminating their command centers, surveillance facilities, military radar systems.

Worse from Trump’s perspective (were he to get better advice from his civilian advisors), the tit-for-tat that is this turn-taking foolishness only runs up, for the mid- and long-term, the casualty count and the physical destruction.

It’s time to be serious. Hit Iran with continuous waves of strikes strong enough actually to be worthy of being called “heavy.” Diplomacy can easily and straightforwardly be carried out while these strikes are ongoing rather than during pauses, which are strongly beneficial to the terrorists: safe passage to a meeting site can easily be granted and enforced for Iranian decision makers’ travel.