Truflation CEO Stefan Rust told Benzinga on Monday that Federal Reserve Chair Kevin Warsh’s hawkishness is a "distraction from his dovishness," predicting no rate hike at next week’s meeting.
Asked what could force Warsh to raise rates, Rust pointed to oil, which was trading around $97.
"Oil prices are definitely going to drive the decision," Rust said. "If it goes above 110 or something like that, it’s very likely we’ll see an interest rate hike."
Since Monday, hostilities in the Middle East have escalated and Brent has surged above $104. Thursday’s producer-price report showed annual producer-price inflation accelerating from 4.8% to 5.4%, while energy prices jumped 4.2% from July.
Polymarket traders put the chance of a September hike at roughly 50% when Benzinga spoke to Rust. The odds jumped as high as 64% after Thursday’s PPI release.
CPI provides the next test Friday at 8:30 a.m. ET. Truflation expects official headline inflation to come in at 3.4%.
Why Rust Sees Warsh as a Dove
Rust said Warsh’s hawkish rhetoric masks more dovish instincts. The clue, he argued, lies in the data Warsh watches.
Rust pointed to Warsh’s interest in trimmed-mean inflation, the Taylor rule and timely data. When paired with Truflation’s lower inflation readings, he argues those tools weaken the case for a hike.
Rust also believes Warsh is closer to Treasury Secretary Scott Bessent’s preference for lower rates than their public comments suggest.
He expects Warsh to provide markets with less guidance, characterizing his message as: "Grow up, make your own decisions, get your own data."
‘Scott Bessent Will Never Allow Rates to Go Up’
"Scott Bessent will never allow rates to go up," Rust said.
Asked what a quarter-point hike would mean, Rust said the impact would be "huge."
"It would be really hard for the Treasury to make sure that the budget deficit gets to 3% of GDP," he said. "The war has already made it nearly impossible to do. And how is he going to do that if interest rates go up?"
Rust also dismissed the idea that Bessent and Warsh are genuinely at odds. He pointed to their shared ties to Stanley Druckenmiller, describing any public friction as competition between people who know each other rather than a deep policy split.
He then went further, calling the Treasury secretary "the ultimate boss" and arguing that Treasury has "more influence and power" than the Federal Reserve chair.
Truflation Says Official Inflation Is Lagging Reality
Truflation’s real-time inflation measures have been running below official government readings. The firm argues that faster-moving price data give policymakers a better picture of current inflation than backward-looking official reports.
Its Sept. 8 report says its CPI measure has historically led official CPI by around 41 days. But the report also warns that inflation is becoming "less benign beneath the headline," with energy now the largest upside risk.
Rust’s argument is not that inflation pressure has disappeared. He says current inflation data do not justify a hike, while a much larger oil shock could change that view.
AI Is Driving Costs Up Before It Brings Them Down
The AI boom is already adding to inflation, Rust said, as data-center construction increases demand for electricians, construction workers, electricity and equipment.
"It’s inflationary," he said. "Already today, you can’t get the turbines you need for the data centers."
Rust said demand from AI, new factories and other projects could leave the U.S. about 15 gigawatts short of the power it needs next year. GE Vernova (NYSE:GEV) said in July it had 116 gigawatts of gas turbines on order or reserved, and its CEO told analysts the company is now taking reservations for 2031 delivery.
Rust expects AI-driven productivity gains to begin outweighing those costs over the next three to nine months, becoming much more significant next year.
"We’ll see amazing productivity gains already next year in the economy," he said.
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