Introducing

Ethan Harris

Ethan Harris has a Ph.D. in Economics from Columbia University and was the Head of the Domestic Research Division at the NY Fed. He was Chief US Economist at Lehman Brothers from 1996 to 2008 and Head of Global Economics at Bank of America from 2009 to 2023. Currently he is the author of the blog Ethan on the Economy.

Publications by Ethan Harris

• USA| May 20 2026

  Warsh and the Bond Market Vigilantes

  Warsh and the bond market vigilantes

  The recent bond market sell off is a reminder of the many risks to the market, including Warsh’s appointment as Fed chair. The market is justifiably worried about three of Warsh’s main policy views: (1) productivity growth will solve the inflation problem without help from the Fed, (2) the Fed should be selling off most of its bond holdings and (3) the Fed should be focused on the weakest of the core inflation metrics—the “trimmed mean” PCE deflator.

  Independent, but in agreement

  President Trump has made it abundantly clear that he wants lower interest rates. Indeed, he has said he will not appoint a Fed chair who does not believe major cuts in the funds rate are warranted and he expects the Fed to cut under Chair Warsh.

  Last month, Bessent offered a more flexible message to the Fed. He noted the uncertainty around the Iran war, saying “if they [the Fed] want to wait for some clarity, I understand that.” Indeed, “we should wait for the new chairman, Warsh, and let him lead the next cycle.” Looking ahead, he said, “the conflict will end, prices will come down, and then headline inflation will come down.” This suggests a short honeymoon period for Warsh, followed by a string of rate cuts.

  In his campaign for the Fed chair, Warsh has been adamant that he has independently arrived at a similar conclusion. He does not want to lower rates because the President wants it, but because economic fundamentals warrant lower rates. Specifically, he strongly supports two arguments. First, the Fed does not need to hike rates to bring inflation down. Quite the opposite, surging productivity will not only solve the inflation problem, but demands that the Fed cut rates to accommodate .

  Second, he argues that any upward pressure on inflation is transitory. Indeed, in his testimony, he argued that the Fed should shift to the “trimmed mean” PCE as its preferred measure of core inflation. This metric strips out the components with both the highest and the lowest inflation. In March, the year-over year increase was just 2.4%, and much lower than other metrics (chart).

  by:Ethan Harris

  |in:Viewpoints
• USA| May 01 2026

  US Inflation: the Fed has more work to do

  The surge in inflation in March is likely to be repeated in April and will continue as long as the Straits of Hormuz remains closed and energy inventories get tighter and tighter. The FOMC and its prospective new Chair have some work to do if they want to restore the Fed’s anti-inflation credibility.

  The Cleveland Fed publishes a “nowcast” for the next CPI and PCE inflation releases. For the core they simply extrapolate the recent trend. However, for food and energy they look at actual daily data and hence they get a good estimate of what headline inflation will look like.

  https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting

  Recall that the consumer price survey is taken over the course of the month. Hence it reflects average prices rather than end-of-month prices. This is important today because food and energy prices rose over the month of March. Hence as the chart below illustrates, the CPI for gasoline will be higher in April than in March.

  by:Ethan Harris

  |in:Viewpoints
• USA| Apr 24 2026

  Energy Shock, What Energy Shock?

  While the press is filled with stories about the biggest oil supply shock ever and crippling gasoline prices, the economic data look fine so far. Nonetheless, I’m getting more, not less, worried.

  So far, so good

  The business press is loaded with stories about how the rise in energy (and related) prices is a huge shock to the economy. There are endless articles about how $4/gal gasoline prices are devastating to households. And perhaps warning comes from none other than the International Energy Agency. They are all over the press arguing that this is “the largest supply disruption in the history of the global oil market.”

  And yet, seemingly miraculously, the US economy seems fine. Most March indicators were solid. Payrolls surprised to the upside and jobless claims remain low by historical standards. suggesting low layoffs. The various purchasing managers indexes are healthy. The only ugly data is the chronically weak consumer confidence surveys. Overall, trendlike growth of 2% or so seems to continue. What gives?

  Time

  The first thing to note is that there are lags between the onset of the shock and the impact on the data. It takes time to change behavior—people tend to look through temporary shocks. Moreover, current data releases measure where the economy was in the middle of March. April data should show some (small) impact.

  A small shock so far

  Despite the warnings from the IEA, so far this is a small shock by historical comparisons. It makes no sense to measure an oil shock looking only at the peak amount of supply disrupted. The duration of the disruption is more important. It is the cumulative amount of oil taken off the market that matters. A short disruption is cushioned by inventories and the consumer response to a short price spike will be small. The size and duration of today’s price shock isn’t even close the recent Russian shock, let alone the 1970s oil shocks (chart).

  by:Ethan Harris

  |in:Viewpoints
• USA| Apr 13 2026

  The Trump Economy, One Year In

  The US economy is neither in a “Golden Age,” as Trump supporters argue, nor is it regularly flirting with recession, as Trump critics argue. In reality, Administration polices have contributed to “stagflation”—a combination of below-trend growth combined with persistent above-target inflation. An even bigger test lies ahead, with a significant risk of a major energy shock.

  Presidential report cards

  In comparing Presidential regimes, a common approach is to average growth and inflation over the four years in office. Of course, this ignores other drivers of the economy, and the lagged effect of policies from the prior President.

  Trump’s Presidency is different. He took “ownership” of the economy out of the gate, with sharp shifts in economic policy. In the process Congress was largely sidelined and Fed policy became secondary. This has been Trump’s economy from the get-go.

  Let’s briefly look at how five kinds of policy shifts—trade, immigration, tax cuts, deregulation and war have impacted the demand and the supply-side of the US economy.

  Demand damage

  The impact of Administration policies on spending and demand has been mixed. The good news is that income tax cuts tend to stimulate consumer spending and corporate tax cuts tend to stimulate investment. Unfortunately, these positive effects have been canceled out by the dramatic increase in consumer and business uncertainty.

  The chart below shows a news-based measure of policy uncertainty from Bloom and others. There has been a massive spike in policy uncertainty in general and trade policy uncertainty in particular. The later is much higher than during the first trade war. This has put sand in the gears of the economy, with firms reluctant to hire and invest and households reluctant to spend. This is one of the reasons why business investment, outside of data centers, has remained weak and manufacturing jobs have declined.

  by:Ethan Harris

  |in:Viewpoints