Good luck, Kevin Warsh! You’re going to need it

Good luck Kevin Warsh You re going – A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free here. Kevin Warsh, the new Trump-appointed Federal Reserve chair, officially takes over Friday for the other Trump-appointed Fed chair, Jerome Powell, whose term is up after eight years.

Now, overseeing the most important central bank in the world is a tough gig under the best of circumstances. Taking it over now — two and a half months into a war that’s sent consumer prices surging, and with his predecessor lingering on the board of governors to try to fend off unprecedented threats to the bank’s independence — is, shall we say, shy of ideal. This week, a series of economic reports made clear just how much of a pickle the US economy is in and just how hard it will be for Warsh to do the one thing the president expects of him: lower interest rates to juice economic growth.

Here’s what the data tell us. 1. Consumers are crying uncle.

Retail sales data out Thursday confirmed what CEOs have been warning about in earnings calls for weeks: People are pulling back, making more discerning purchases on smaller, essential goods and putting off big-ticket items like home appliances and cars. (Whirlpool, which owns the KitchenAid, Maytag and Amana brands, recently described the dynamic as a “recession-level” pullback similar to the 2008 financial crisis.) The biggest culprit is, no surprise, gasoline. The war in Iran has pushed energy prices up around the world, raising the cost of transporting just about everything, everywhere.

“The war has come home, and Americans can feel it and see it in their grocery basket,” Joe Brusuelas, RSM US chief economist, told CNN this week. Consumer sentiment, by at least one measure, is at an all-time low. CNN polling has also captured that anger, as 75% of Americans say the Iran war has hurt their finances.

US retail sales went up 0.5% from March to April, though much of that gain reflects higher prices rather than a higher sales volume. Higher tax refunds also made it easier for many households to get by as inflation ticked higher. 2.

Paychecks are shrinking “Inflation is alive. Real wage growth is dead,” Aaron Sojourner, senior economist at the W. E.

Upjohn Institute for Employment Research, told me. In other words, prices on everyday goods and services are now going up faster than most paychecks — a notable shift from the past three years, when wages largely kept up with or even outpaced inflation. On average, paychecks grew 3.6% over the past year, according to the Consumer Price Index for April, released Tuesday.

But prices have gone up 3.8%. 2. It’s a sticky situation Not all inflation is created equal.

Consumer goods, especially gas and food, tend to fluctuate quite a bit. And certainly, you’d expect a big surge in prices right now, as the energy chokepoint of the Strait of Hormuz has been effectively shut for more than two months. That seems to be what President Donald Trump was referring to when he shrugged at the CPI report this week, saying the spike was “just short-term.” But “services” — aka what we pay for rent, airfare, health care, tuition, dining out, etc — are typically steadier.

And when those prices move higher, they tend to be “sticky.” Meaning they don’t come down easily. Both the CPI and its slightly more obscure cousin, the Producer Price Index, which tracks what businesses pay at the wholesale level, showed higher prices creeping into services. The “core” reading of the PPI report — taking out the volatile energy factor — confirmed “a deeper structural trend, especially in services,” David Russell, global head of market strategy at TradeStation, told CNBC.

“The Hormuz crisis is aggravating the problem, but this goes way beyond oil.” Core PPI went up 1% from March to April, accelerating from March’s revised 0.3% monthly pace. Wholesale services went up 1.2% — the biggest monthly gain in four years. Bottom line: Trump may have shot himself in the foot when it comes to cajoling the Fed to bring down interest rates.

Even if the war ended today, it’d be months before oil and gas supplies get back to normal, which means inflation may be sticking around, and cutting rates would only make the situation worse. Warsh only needs to look at Powell’s last couple of years as Fed chair to get a sense of what happens when one of Trump’s nominees refuses to do his bidding.