Federal Reserve Chair Kevin Warsh said Tuesday that the Fed will make high inflation “a thing of the past,” yet he provided no signal about the central bank’s next steps.
Fed policymakers “have no tolerance for persistently elevated inflation,” Warsh said in his first appearance before Congress since becoming chair May 22, replacing former chair Jerome Powell. “And we share a resolute commitment to restoring price stability.”
Still, Warsh heads a sharply divided rate-setting committee, with about half of the 19 policymakers penciling in higher interest rates by the end of the year in forecasts released last month. Another half have signaled that they support keeping rates unchanged or even cutting them. Warsh faces a stiff challenge in reconciling the divided committee while navigating a rapidly-changing economic outlook.
Warsh spoke to the House Financial Services Committee soon after the government reported that inflation fell 0.4% from May to June, driven down mostly by cheaper gas prices. Core inflation — which excludes the volatile energy and food categories — was unchanged last month, a broader slowdown in price increases than economists expected.
Compared with a year ago, inflation dropped to 3.5% from 4.2% in May. Core inflation rose just 2.6% in June from a year earlier, down from 2.9% in May, a positive sign that higher gas costs haven’t yet lifted broader prices. Still, the core figure is above the Fed’s 2% target.
The cooling inflation figures reduce pressure on the Fed to combat higher prices by hiking interest rates. Still, the renewed conflict in the Middle East has already driven up oil prices and could reverse some of the progress on inflation in coming months.
Warsh, asked about the price figures, said they represented just one month of data and suggested he does not see inflation as defeated.
“There might be some that look at this morning’s data and say, ‘mission accomplished,’” he said. “That is not my view.”
In keeping with his stated policy of providing less guidance about the Fed’s policies, Warsh did not signal whether rate increases would be necessary to combat inflation. The Fed chair is also facing questions from members of the committee.
Warsh was pressed by Democrats on the committee to explain how he would react if President Donald Trump, who repeatedly attacked his predecessor, demanded that he cut rates or take other steps that weren’t justified by the economic data.
“Are you ready for that?” Rep. Gregory Meeks, a Democrat from New York, asked.
“My commitment to you is to follow the law and follow the data, follow our very best judgment,” Warsh said.
Warsh also cited the Supreme Court’s recent decision to allow Fed governor Lisa Cook to remain on the central bank’s board, thwarting Trump’s attempt to fire her for now, as a sign the high court sees the Fed as independent.
“To the extent there were questions about it, the court has answered those questions,” he said.
The renewal of the Iran war has caused oil prices to climb again after they had fallen back to nearly their prewar level. Gas prices had fallen about 20% from their peak but have also increased in the past week and are still about 35% higher than they were when the U.S. attacked Iran Feb. 28.
Some Fed officials have argued that underlying inflation, even excluding the impact of gas prices, remains elevated and may require higher interest rates to defeat.
Another factor that could boost inflation for the rest of this year is the massive investment in artificial intelligence infrastructure by the so-called “hyperscalers,” such as Google parent Alphabet, Microsoft, Amazon, and Meta Platforms. The spiking demand for memory chips and processors has sent semiconductor prices soaring, leading to price hikes for laptops, tablets, and video game consoles.
Warsh said Tuesday that AI investment is “the most striking feature of the economy right now” and added that the Fed is “monitoring the implications” for inflation and jobs.
Other Fed officials have stepped in to provide guidance as Warsh has declined to do so. Fed Governor Christopher Waller on Monday said that another “hot” inflation report Tuesday would mean the Fed would have to consider raising rates “in the near term.”
But last week John Williams, president of the Federal Reserve Bank of New York, said that if core inflation stays at a 0.2% monthly pace for the rest of this year, the Fed could avoid hiking rates. Williams’ approach implies the Fed would keep rates steady for some time while it monitors incoming data.
