Inflation is back above 4% for the first time since 2023—but Kevin Warsh might catch a break

Consumer prices rose 0.5% in May, the Bureau of Labor Statistics reported Wednesday, lifting annual inflation to 4.2% from 3.8%—the first 4%-handle increase in three years.But the heat was mostly contained in energy. Energy accounted for more than 60% of the monthly damage, with gasoline jumping 7% from April and 40.5% over the year as the war in Iran chokes the Strait of Hormuz and drives oil higher. If you strip out food and energy from the “core” CPI, it rose just 0.2% and 2.9% over the year, softer than expected and suggesting that the spillover was relatively limited. That’s the number the Fed actually watches, and it isn’t flashing the overheating signs that could force its hand. Overheating was the fear with this print, not just from the Iran war but with AI. Chicago Fed President Austan Goolsbee has warned that the AI boom could heat the economy before it delivers any productivity gains, as the costs of the buildout grow. China’s economy showed a version of this overnight, with wholesale inflation near a four-year high on AI-driven demand. But May’s consumer data doesn’t show it yet; the hot part is still the oil shock. Yet an inflation rate above 4% makes a rate cut harder for new Fed chair Kevin Warsh to justify, especially after a surprisingly strong May jobs report. The risk now is that the oil shock, like the previous supply shocks that have battered the economy since the pandemic, proves to be sticky. It’s an awkward print for Warsh in particular. Confirmed in May in the closest Fed-chair vote in modern history, critics accuse him of being installed largely because Trump expects him to cut rates. Warsh, for his part, has argued that productivity gains from AI will allow the economy to grow faster without spurring inflation, thereby enabling the Fed to lower borrowing costs. But the American public is showing signs of fatigue with five years of above-2% inflation. Consumer sentiment fell to a record low in