Fed Fights Trump: Warsh Must Choose a Side
The Saudi pipeline that bypasses the Strait of Hormuz — roughly 750 miles of steel that was built precisely for moments when the Strait became too dangerous to use — has been shut down after attacks.
The number is $6. That is what a gallon of diesel costs in the United States — a record, and the kind of price that does not stay inside American borders. It travels. It arrives in freight rates, in shipping containers, in the cost of everything that moves anywhere in the world. And right now, it is moving through every supply chain on the planet like a slow fever.
Here is the mechanism. The Saudi pipeline that bypasses the Strait of Hormuz — roughly 750 miles of steel that was built precisely for moments when the Strait became too dangerous to use — has been shut down after attacks. The Strait of Hormuz is not abstract geography. About 20% of the world's oil passes through it. The pipeline was the backup plan. Now the backup plan is also compromised, and markets are doing what markets do when two risks collide simultaneously: they price in the worst version of both.
Into this walks Kevin Warsh, the Federal Reserve Chair, holding a rate decision that was already impossible before oil became a geopolitical weapon. Consumer prices rose 3.4% year-on-year in the latest reading. The Fed's target is 2%. The gap between those two numbers is where Warsh lives right now — and where the pressure from the White House is building loudest. The president does not want rate rises. Rate rises mean tighter credit, slower growth, a more expensive economy heading into an election cycle. But an energy shock feeding into already-sticky inflation means that not raising rates risks something worse: a credibility collapse. A central bank that talks about fighting inflation but refuses to act when oil is on fire is not a central bank anyone believes anymore.
I will make the call here: Warsh raises. Not because he wants to. Because the alternative — watching diesel at $6 and doing nothing — would break the one thing a central bank cannot afford to lose. The conditions under which I am wrong are two: a sudden de-escalation in the Middle East that brings supply back quickly, or a GDP print soft enough to give him political cover for a pause. Neither looks likely on the current map.
What this means for Social Security recipients watching their Cost of Living Adjustment tick up by another $71 a month in 2027 is not good news wrapped in good packaging. A higher COLA is the system admitting that inflation is permanent enough to require compensation. You are not richer. You are running faster to stay in the same place.
For Malta, this lands in two places. Fuel-linked costs — freight, utilities, logistics — do not respect island status. And any Maltese business carrying dollar-denominated debt or trading in energy-adjacent sectors should be watching the Fed's decision with the same attention they give their own central bank. Which, of course, is the European Central Bank — and the ECB does not move in isolation from what happens in Washington.
A rate environment where both the Fed and the ECB are being pushed higher by external supply shocks is not a forecast. It is a description of what is already underway.
---
*Marcus Azzopardi is Finance & Markets Editor at News Beast by FreeMalta.com.*
