Economist Mark Blyth analyses the economy and path ahead for new Federal Reserve chair

ELISSA NADWORNY, HOST:

The Fed has a new chair, and he faces a persistent problem - inflation. On Tuesday, the Labor Department announced that consumer prices were up 3.8% in April, year over year. That's the highest jump since 2023. The next day, the Senate confirmed Kevin Warsh as chairman of the Federal Reserve. He now inherits the full weight of the Fed's dual mandate to keep inflation low and the American labor market strong, keep people both working and able to spend on goods and services. We'll turn now to Brown University economist Mark Blyth for his advice for Chairman Warsh and what the rest of us need to know about the economy. Professor Blyth, thanks for speaking with us.

MARK BLYTH: It's lovely to be with you.

NADWORNY: So I think it's pretty easy to look at April's jump in prices and point to the war in Iran - gas prices, you know, the knock-on effects of those. Do you see much beyond that to worry about, or can we assume that things are going to settle back down if and when there's a resolution?

BLYTH: Oh, we keep waiting for the settle down, don't we?

NADWORNY: (Laughter).

BLYTH: You know, it was all meant to be transitory, and even life is transitory if you wait long enough, but 3.3% in March, 3.8% in April, I mean, it's getting up to 4%. This is serious. Energy is about 40% of it, but we still got a problem with housing, with rents. Depending on where you are in the country, a basket of groceries is basically up 25- to 30% over where it was at the beginning of 2021. Eggs never really went back to normal. So there's a whole host of price pressures that aren't just about the Strait of Hormuz.

NADWORNY: OK. What about President Trump's tariffs? I mean, many have been invalidated, but not all of them.

BLYTH: That's probably part of it. It's hard to actually parse this through. The best estimates that we have on that is maybe it added about 0.8% to the total we fell over the past kind of year, which is significant, but there's a big error margin on that one as well in the estimates. There's lots of other things going on we're not thinking about. Consider the fact that we've decided to deport large numbers of people in the United States. That's a lot of people who pick agricultural products. Let's think about the stock market going gangbusters over AI. Why is that? Well, because they're building all these data centers. Have a look at the prices of drywall. Have a look at building supply, ships, all the stuff that goes into data centers. That's red hot. And we're running a big deficit. So we're just pumping, pumping, pumping into the economy, and at the same time, there's limited supply. So it's got to go somewhere, and it shows up in prices.

NADWORNY: OK. So if inflation remains sustained, what's your advice to someone listening right now? Like, is there anything the average American can do?

BLYTH: Unfortunately, there's not much. And part of the problem is we've become a very skewed country. And here's what I mean by this. We recently made a record, which was the labor share of national income - how much people who get wages and salaries take home as a percentage of all the money that everybody makes - hit an all-time low. It was 53.8% at the end of '25. It's gone up just to about 54. At the same time, corporate profits, which usually average about 7%, 8% of national income, are now 12% of national income. So there's been this giant vacuuming up to the top. And as prices go up, the best solution for this is to wages to go up, but wages aren't going up. Wages as a whole, are not compensating. They're not enough to basically get that purchasing power back.

NADWORNY: OK. So let's go back to the Fed's dual mandate that we mentioned at the top. Can you talk about the labor side of things?

BLYTH: Yeah. We're not seeing a big shift up in unemployment yet. This isn't sort of the stagflation of the 1970s with 8% inflation and 8% unemployment, but it is worrying, and it's worrying that it's not going down. And in an economy where 60% of the population struggle to make ends meet in these conditions, it's very, very grinding. It's not good. One of the things about pushing people out of the labor market through immigration policy is that you tighten it up. And then when you have an aging population, you have less workers. So in theory, at least, the people who are in work should be getting higher wages. But that doesn't seem to be happening. What we have is basically a continuation of something that's been going on for the past 25 to 30 years, which is wages on the whole are stagnant, whereas profits are not.

NADWORNY: OK. So as Warsh works to keep inflation low and the job market going, paint a picture of what you think the Kevin Warsh economy is going to feel like.

BLYTH: If you're in the top 20% of the income distribution and you shop at a place like Whole Foods, it doesn't really matter. You've been overpaying for your groceries for years. If you're everyone else, it's expensive gas that's going to remain expensive. It's rents that keep going up and up because there's no new supply coming on at scale to do anything about it. So it's a sticky economy, and it's very sticky for those that aren't in the top 20%.

NADWORNY: Sticky in the sense that you're stuck.

BLYTH: Sticky in the sense that you're stuck, and your dollars are buying less and less.

NADWORNY: That's Brown University political economist Mark Blyth. Thanks for speaking with us.

BLYTH: Pleasure. Transcript provided by NPR, Copyright NPR.

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