We hope you're well-rested because this week will be a doozy, with earnings, a key Fed decision, second-quarter growth data, plus the release of two indicators the Fed watches closely: PCE inflation and the employment cost index.

  • We'll be here to take you through all of it, but first today: an early sign of what's ahead for the Fed's political dealings, and what new research says about the benefits of the hybrid work model.

Today's newsletter, edited by Javier E. David, is 664 words, a 2½-minute read.

1 big thing: The Fed's rocky new dynamics

Sen. Elizabeth Warren and Fed chair Jerome Powell at a hearing last year. Photo: Kevin Dietsch/Bloomberg via Getty Images

A new attack on the Federal Reserve from Sen. Elizabeth Warren is an early sign the central bank faces a rocky path ahead in navigating politics.

  • It will simultaneously face the music for allowing high inflation to take hold and for the economic pain resulting from its efforts to bring down prices.

Why it matters: The Fed has left itself in a precarious position with lawmakers and the public amid soaring inflation and a newly aggressive game of catch-up that risks a recession.

Driving the news: Warren writes in a Wall Street Journal op-ed that the Fed's rate-hiking campaign — including another 0.75 percentage point expected Wednesday — "risks triggering a devastating recession."

  • "Unfortunately, the Fed has seized on aggressive rate hikes—a big dose of the only medicine at its disposal—even though they are largely ineffective against many of the underlying causes of this inflationary spike," Warren writes, citing short supplies of energy and food due to the Ukraine war.

Between the lines: The Biden administration has been content to put the Fed front and center in its messaging on inflation, extending deference to the central bank as the government's primary inflation fighter.

  • Warren is speaking for many on the left who are less-than-thrilled with this approach. They fear the Fed's aggressiveness will mean lower-wage workers bear the brunt of tightening — and could prove an early sign of things to come.

Chair Jerome Powell has managed generally good relationships with the Biden administration, and with both sides of the aisle on Capitol Hill. He secured 80 Senate confirmation votes for a second term just two months ago.

  • If anything, the criticism has come from Republicans and a handful of Democrats who blame Powell and the Fed for not acting sooner to rein in inflation.

Yes, but: Things can change quickly. If the economy indeed falls into a recession, elected officials may clamor for easier money, and it's plausible the Fed will respond.

  • It would be an inversion of the 2010s era, when the Fed took political heat for its low interest rate policies.
  • Look for interest rate-sensitive industries like real estate to squawk loudest as higher rates start to cause pain.

Flashback: Part of the Fed's lore is linked to the early 1980s under chair Paul Volcker, when the central bank engineered a deep recession that succeeded in bringing down inflation.

  • But high interest rates also spurred a public outcry, including protests by farmers on tractors at the Fed's Foggy Bottom headquarters and pieces of 2x4 lumber mailed in by angry construction interests.

The bottom line: The slowing economy will put the Fed in new political crosshairs.

2. New paper: The upshot of hybrid work

Illustration: Sarah Grillo/Axios

Higher productivity, better retention rates and happier workers: These are some of the benefits of employees working from home at least part of the week, a new National Bureau of Economic Research working paper notes.

How it works: The study, led by Stanford professor Nicholas Bloom, focused on a random group of 1,600 engineers and finance and marketing employees for six months at travel firm Trip.com, which was evaluating whether to implement a hybrid model.

  • Some worked from home on Wednesdays and Fridays, while others worked full-time at the office.

Details: Workers logged fewer hours while at home but made up the time while in the office and on the weekend — "highlighting how home-working alters the structure of the working week," researchers write.

  • Employees who worked from home had higher rates of usage of messaging platforms and video calls, even while in the office.

But perhaps a key takeaway — especially for work-from-home naysayers — was the uptick in productivity.

  • Among hybrid workers, lines of code written increased by 8%. Employees' self-assessed productivity jumped slightly, too.
  • The paper also found WFH cut quit rates by more than one-third at the firm, while self-reported reports of work satisfaction rose. It also found no significant impact on performance assessments or promotions.

Worth noting: Once the experiment ended, Trip.com rolled out a hybrid model to the entire company.