Fed Chair Warsh Faces Overheating Question as Nominal GDP Tops 6%

September 16, 2026 at 07:47 PM2 min

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Federal Reserve Chair Kevin Warsh confronts the question of whether the U.S. economy is overheating as markets price a near-certain quarter-point rate hike on Wednesday. Nominal GDP grew more than 6.5% in the second quarter, well above the 4% equilibrium level. The decision hinges on whether inflation stems from supply shocks or excess demand.

Key Facts

The 10-year Treasury yield has pushed above 5%, around its highest level since 2007.
U.S.-dollar debt issuance to finance AI and data-center development reached $308 billion through July.
U.S. national debt crossed $40 trillion less than a month ago.
Nominal GDP grew about 6% in the first quarter and more than 6.5% in the second quarter from a year earlier.
Traders have priced a quarter-point rate hike on Wednesday with near certainty.

Overheating Indicators

Oil prices hover around $110 a barrel, while the 10-year Treasury yield has pushed above 5%, its highest level since 2007. Credit markets are running hot, with U.S.-dollar debt issuance for AI and data-center development reaching $308 billion through July. U.S. national debt crossed $40 trillion less than a month ago, competing with corporate borrowing. Stocks remain up roughly 11% this year despite a rough few days, and inflation remains above 3%.

Policy Debate

Mohamed El-Erian, chief economic adviser at Allianz, outlined four questions on X, including whether oil-supply disruptions persist and whether Treasury Secretary Scott Bessent intervenes again in long-end yields. Jon Hilsenrath, founder of Serpa Pinto Advisory, argues the economy is overheating, citing nominal GDP growth of 6% in the first quarter and over 6.5% in the second. Hilsenrath said nominal growth around 4% would be equilibrium if the economy produces 2% more goods and services and the Fed targets 2% inflation. At 6% or 7% nominal growth, either America has unlocked an unusual productivity boom or there is too much demand for the amount of stuff being produced.