Warsh Just Broke the Greenspan-Bernanke Rule, and the U.S. Will Pay
By Peter Navarro | RealClearMarkets | September 17, 2026
Fed Chair Kevin Warsh just raised interest rates into the teeth of an oil price shock. It’s a monumental mistake that has Alan Greenspan rolling over in his grave.
Thirty-six years ago, then Fed Chair Alan Greenspan faced strikingly similar circumstances. A hot war in the Middle East and surging oil prices
Greenspan did not hike interest rates. Instead, the Maestro held rates steady and, over time, as the energy price shock took its slowing growth toll, Greenspan eventually cut rates.
Greenspan later told Congress that the Persian Gulf crisis had become a key cause of economic weakness because the jump in petroleum prices “cut into the real disposable income of households” and weakened spending throughout the economy.
That is the essence of an oil shock. Higher energy prices act like a tax on both families and businesses—in effect, they do the contractionary work of an interest rate hike.
The reason was obvious to Greenspan—if not now to Kevin Warsh. Families spend more filling their gas tanks and heating their homes. Airlines, truckers, manufacturers and farmers pay more for fuel. Corporate margins get squeezed. Consumers have less money left to spend elsewhere.
Greenspan was wise enough not to compound the damage by raising interest rates—hitting homebuyers, car buyers, manufacturers, builders and small businesses with a second tax.
The distinction Greenspan understood was between a one-time increase in the price level and a continuing inflationary process.
Yes, oil can make gasoline more expensive overnight. But oil cannot by itself create permanently accelerating inflation. That requires the shock to spill over into wages, inflationary expectations and prices throughout the economy.
Greenspan’s successor Ben Bernanke later followed much the same playbook. In 2008, oil and other commodity prices were again soaring. Yet, Bernanke’s Fed kept interest rates relatively low despite elevated headline inflation.
Here’s the Greenspan-Bernanke Rule formalized: Don’t try to kill the first-round oil shock with higher interest rates. Watch the second-round inflation effects. Don’t hike rates into the teeth of an energy price shock.
Warsh has now broken that rule—arguably the worst first rate hike decision of any new Fed chair in modern history.