Federal Reserve Chair Kevin Warsh stated on Tuesday that the Fed is committed to making high inflation "a thing of the past," emphasizing that policymakers "have no tolerance for persistently elevated inflation" and a "resolute commitment to restoring price stability." This was his first appearance before Congress since replacing Jerome Powell on May 22. However, Warsh declined to provide any guidance on the central bank's next steps regarding interest rates, explaining that providing such projections could bias officials to only accept information consistent with their prior assumptions.
Warsh's non-committal stance on future rate adjustments comes despite recent positive inflation data. Compared to a year ago, inflation dropped to 3.5% in June from 4.2% in May. Core inflation, which excludes volatile energy and food prices, rose just 2.6% in June, down from 2.9% in May, though still above the Fed's 2% target. He dismissed these figures as only one month of data, indicating he doesn't view inflation as defeated. The recent cooling inflation reduces pressure on the Fed to hike rates, but rising oil prices due to the renewed conflict in the Middle East, specifically the Iran war, could reverse this progress.
The Fed's rate-setting committee is currently divided, with about half of the 19 policymakers anticipating higher interest rates by year-end and the other half favoring stable or even lower rates. Warsh acknowledged the division and the challenge of reconciling differing views. Other Fed officials have offered more guidance, with Governor Christopher Waller suggesting rate hikes might be considered if inflation reports remain "hot," while New York Fed President John Williams indicated that steady core inflation could allow the Fed to avoid rate increases. Warsh also highlighted massive AI investment as a striking feature of the economy, which could impact inflation and jobs, noting its potential to drive up semiconductor and related prices.
