--- title: 'The Fed Found a New Way to Lower Inflation' source: 'https://youtube.com/watch?v=iJGMYvFnH9Y' video_id: 'iJGMYvFnH9Y' date: 2026-08-01 duration_sec: 701 --- # The Fed Found a New Way to Lower Inflation > Source: [The Fed Found a New Way to Lower Inflation](https://youtube.com/watch?v=iJGMYvFnH9Y) ## Summary This video examines how the Federal Reserve could hit its 2% inflation target by changing the way it calculates inflation. The speaker contrasts M2 money supply inflation (6.05%) with CPI (3.8%) and core PCE (3.3%), introduces the trim-mean calculation backed by new Fed Chair Kevin Warsh, and analyzes market expectations for interest rates. ### Key Points - **The Easiest Fix: Change the Inflation Calculation** [00:14] — The simplest way to get inflation down to 2% is to alter how it's calculated, and the speaker claims this is exactly what the Fed plans to do. - **M2 Money Supply Shows 6% Inflation** [01:09] — Using M2 money supply growth for 2026 year-to-date, real inflation is 6.05%, far above the CPI reading of 3.8%. - **CPI Measures Cost of Living, Not Prices** [01:38] — The CPI report measures changes in the cost of living rather than actual price changes, substituting or removing items whose prices rise too fast, which critics call the 'CPI lie.' - **Why the Government Understates Inflation** [02:32] — Higher reported inflation would force larger Social Security cost-of-living adjustments, and with $39 trillion in debt, the government can't afford that. - **Inflation Rates and Price Doubling Times** [03:45] — At 2% inflation prices double in 35 years; at 3.3% in 21; at 3.8% in 19; at 6% in just 12 years. - **Kevin Warsh Replaces Powell as Fed Chair** [04:39] — Trump pushed Powell out and got Kevin Warsh confirmed, with the president pressuring for aggressive rate cuts while inflation spikes. - **Inflation Is Spiking Again** [05:52] — April CPI came in at 3.8%, and May is expected at 4.2% or higher, putting Warsh in a tough spot. - **The Trim Mean Calculation: A New Way to Lower Inflation** [07:11] — Warsh supports the trim-mean calculation, which shows inflation at 2.3%, bringing it near the Fed's target without any real policy action. - **Market Odds: No Cut at June Meeting** [07:53] — The CME FedWatch tool shows a 98.6% chance rates stay unchanged on June 17, Warsh's first meeting. - **Year-End Outlook: Markets Expect Rate Hikes** [09:01] — The market assigns a 54.3% probability to higher rates by December, with the most likely outcome being rates staying at 3.75%. ### Conclusion The Fed appears to be leaning on a statistical technicality — the trim-mean calculation — to claim it's close to its inflation target, while actual money-supply growth suggests inflation is far higher. The market, however, expects rates to stay flat or rise, leaving new Fed Chair Kevin Warsh with a no-win choice. ## Transcript ridiculous. Just going to shake my head in disappointment. Okay, so the Federal Reserve has been trying to get inflation down to a rate but they can't do it. They've been trying for years and they keep failing. printing. Okay, so let me ask you, do you know the easiest way to get inflation down to a rate of 2.0%? What's the easiest way? How do you do it? I'll tell you, the easiest way to do it is to change the way that they calculate inflation. And that's what they're going to do. So, I wish I were lying. I wish I were exaggerating but unfortunately, that's Let me know what you think. Now, let me ask you another question. What's the real way to calculate the rate of inflation? Well, it depends on who you ask, apparently. Like if you ask me, here's how you do it. You look at the M2 money supply. You ask the question, "A year ago, how much money was out there? And how much money is out there right now?" calculate the change and then you get your rate of inflation. Pretty person would do it. So, if you look at the M2 money supply Reserve. You're going to see that for year-to-date for 2026, the rate of inflation has been at 6.05%. Got it? So, remember that number. Just call it 6%. But, the CPI inflation report says that inflation is running at a rate of 3.8%. Okay, so why the difference? 6% compared to 3.8%. You know, that's a big That's a big difference. It's because the CPI inflation report does not measure the change in prices from one period compared to another period. No. You know what the CPI inflation report does? It measures the change of the cost of living. You know, whatever that means. So, they calculate things like Like this is how they do it. The Let's just say that the price of oranges is going up so fast well, the the way that they're they're thinking is is just okay, sub out oranges because it's the price is going up so fast, sub it out for as fast. You know, it's going to make our numbers look better. Or let's just say the price of ground coffee is going up too fast and it's making their numbers look bad. So, you know what they do? just eliminate it from the calculation altogether. So, that's why a lot of people are they refer to the CPI reports as the CPE lie Okay, so why do they do this? Why do they why does the government understate the rate of inflation, the true rate of inflation? It's because imagine if the governments had to pay social security recipients a 6% cost of living adjustments each year compared to a 3.8% adjustments. case, then that would be expensive for the governments and it's all about the So, that's what it boils down to, like if you haven't realized it by now. And the government is broke. They're in debt $39 trillion. However, the Federal Reserve says that their preferred measuring stick to assess inflation is core PCE inflation. So, that's what they go off of. And that just recently came in at 3.3%. So, inflation is running at 6%. The CPI inflation report says that it's running at 3.8%. whole time they've been saying that they prefer to use core PCE inflation, which removes energy and food prices, which is at 3.3%. Okay, but you have to remember that the target is to get it down to 2.0% and even 3.3% is a long ways off. Okay, so the Federal Reserve is trying to get inflation down to 2.0% and if they're using core PCE inflation, which is at 3.3% as their measuring stick, then you might think, "Okay, 2% compared to 3.3% you know, that's not a big difference. Like, what's the big deal?" I'll tell you, it is a big deal. That's a huge So, listen, if inflation is running at a rate of 2.0%, which is again, the Federal Reserve's target, that means that prices double every 35 years. Now, if you're going to be using core PC inflation, and that's got an inflation rate currently of 3.3%, then that means that prices double every 21 years. At 3.8%, like if you're going to be At 3.8%, like if you're going to be using CPI inflation, prices double in 19 years. If you go by the M2 money supply, at an inflation rate of 6.0%, at an inflation rate of 6.0%, prices double every 12 years. Now, I what's going on. J. Powell was the chair of the Federal Reserve, but now his term So, President Trump nominated Kevin Warsh to replace J. Powell as a new Fed chair. And the Senate confirmed Warsh, so Warsh Reserve as of May 22nd. And as you probably know, Trump was so, I mean, he was frustrated and very upset at Powell for not cutting interest rates as much as Trump wanted him to. So, Trump called Powell an imbecile, an idiot, a major loser, a real dummy, a stupid person, a jerk, numbskull, etc. I things to reporters in public. So, documents Justice launch a criminal investigation against Powell, which was clearly an intimidation measure. All of this, you know, all all of this because Powell just refused to cut interest rates. So, President Trump is rates. I mean, that's why President Trump gave him the job. I mean, I want you to think about this. Like, how is Warsh supposed to cut inflation is spiking up right now due to the rising energy costs. So, I want to show you this chart of the rate of inflation. This is according to the CP lie. So, take a look at this. Look at how inflation has been spiking up until April. Like, I can't wait to see how this chart looks in May. Like, it's going to be higher. April was at 3.8%. May is expected to be around 4.2%, but it might it might come in much higher. higher. So, if Warsh cuts interest rates, then the consequence is that it's going to add fuel to the inflationary fire. Okay, another question. Why is it so important to President Trump for the Federal Reserve to lower interest rates? It's because lower interest rates spur economic growth and increase hiring. Like, it helps labor markets. So, it's also going to help the housing markets and well, the real estate market in bread and butter, of course. And lower interest rates would make it easier for the government to service their debt. The interest expense would rates. So, those are the benefits. However, the drawback is higher inflation. And although like, I'm sorry, but inflation is picking up again and it's picking up at alarm rate. All right. So, with that being said, how can Kevin Warsh give President Trump what he wants, which is, of course, lower interest rates, but also justify it? So, one way to do it, which is what Kevin Warsh has been saying publicly, is for the Federal Reserve to change how they calculate inflation. And Kevin Warsh is advocating for the methodology called the trim mean calculation. And using that new improved calculation, the rate of inflation is 2.3%. Like, tada. Like, you see how easy it is to bring down inflation. You just change the calculation method. So, it looks better with this method, you know, problem solved. So close to the target 2.0%. if they're very close to their target of 2.0%, I guess that's one way to justify So, listen, I already warned you at the start of this video that it's going to get a bit ridiculous, but you can let me know your opinion. Now, I want to show you what the market thinks, and the market is not buying it, what's going to happen. Anything's possible, right? So, this is coming from the CME FedWatch tool. The next Federal Reserve meeting's on June 17th, and this is going to be Kevin Warsh's first meeting as chair of the Federal Reserve. So, there is a 98.6% chance that the Federal Reserve will keep interest rates the same at this meeting. So, there's a 1.4% chance that they cut interest rates by 0.25%, so it would go from Well, if they cut, not, but if they did, it would go from the current 3.75% to 3.5%. to be on July 29th. The highest is that the Federal Reserve will keep interest rates the same. So, there's a 1.3% chance that they cut interest rates by a quarter point by And there's a 6.3% chance that they're going to raise interest rates by then. So, to me, the July meeting, like I'll tell you, it's quite interesting in terms of what the market is expecting. The vast majority believes that there's going to be no change. However, some people are expecting a cut by or at the July meeting, and some people are expecting Now, I just want to jump ahead. Let's go to the end of the year. So, we're going to go to the the last meeting of this year, 2026, which is on December 9th. can see. So, I've highlighted what the interest 3.75%, and the market believes that there's a and the market believes that there's a 45% chance that we remain at 3.75% by the end of the year, which is assigned as the most likely outcome. And there's a 0.6% chance expectation that interest rates will be lower by the less than 1%. There's a 54.3% chance that interest rates will be raised by the end of the year, and it's ranging from, you know, a higher interest rate of by 0.25% higher to all the way to a full percentage point higher. So, I just want to say, like if that does happen, which is, you know, a very high probability, can you imagine how angry President Trump's going to be at Warsh if he raises interest rates? Like he's he's demanding interest rate cuts, but very upsetting to Trump, but raising rates, that would be pretty wild. So, tricky situation because if the Federal Reserve cuts interest rates to help the economy and to lower borrowing costs, then it's going to give inflation a boost, and it's going up already. And if the Federal Reserve raises interest rates to suppress inflation, then that's going to damage the economy, it's also going to increase borrowing costs, not just for consumers, but for the United States government as well. And if the Federal Reserve keeps then just take a look at the current situation. The economy's going to continue to degrade, the labor market's going to continue to weaken, and as I've said before, the United States government cannot afford a recession, which, you know, we've already walked through the numbers in a previous video. Anyways, to Kevin Warsh, you know, good luck. Like you're going you, the math is not going to work out. And listen, I just want to tell you this. If you enjoy this content, then I extend my invitation to you to join our investing community. So, you can see what I'm investing in, you can get my chat room. We have thousands of investors in there. down below. Thank you so much and wish you a very nice day. Take care.