Federal Reserve Chair Kevin Warsh appeared before the House Financial Services Committee on Tuesday, delivering a firm anti-inflation message while deliberately withholding any guidance on the central bank's next policy move, underscoring the mounting uncertainty surrounding U.S. monetary policy. In his first congressional testimony since assuming the chairmanship on May 22, replacing former Fed Chair Jerome Powell, Warsh declared that the Fed will make high inflation "a thing of the past." He stressed that policymakers "have no tolerance for persistently elevated inflation" and reaffirmed a "resolute commitment to restoring price stability." Despite the hawkish rhetoric, Warsh stopped well short of signaling whether an interest rate hike, cut, or hold would be the committee's next step. The testimony came on the same day the government reported that inflation fell 0.4% from May to June, driven largely by cheaper gasoline prices.
On an annual basis, overall inflation dropped to 3.5% in June from 4.2% in May. Core inflation, which strips out the volatile food and energy categories, rose 2.6% year-over-year in June, down from 2.9% in May, a broader deceleration in price pressures than economists had anticipated. On a monthly basis, core inflation was unchanged in June.
While the data offered some relief, the core reading remains above the Fed's 2% target. The softer inflation print reduces the immediate pressure on the Fed to tighten policy further. However, the renewed escalation of military conflict in the Middle East has already pushed oil prices higher, threatening to reverse recent progress.
According to AP News, gas prices had fallen approximately 20% from their peak but have risen again in the past week and remain roughly 35% higher than they were when the United States attacked Iran on February 28. The resumption of the Iran war could feed back into broader consumer prices in the coming months. Warsh heads a deeply divided rate-setting committee.
According to AP News, approximately half of the 19 Federal Open Market Committee policymakers have penciled in higher interest rates by year-end, while the other half have signaled support for holding rates steady or even cutting them. The chair faces a formidable challenge in forging consensus within the committee while navigating a rapidly shifting economic environment. In keeping with his stated approach of offering less forward guidance than his predecessor, Warsh declined to indicate whether rate increases would be necessary.
Other Fed officials have stepped in to fill the communications void. Fed Governor Christopher Waller said on Monday that another "hot" inflation reading would compel the Fed to consider raising rates "in the near term." By contrast, John Williams, President of the Federal Reserve Bank of New York, said last week that if core inflation maintains a 0.2% monthly pace for the remainder of the year, the Fed could avoid hiking rates altogether, implying a prolonged period of steady rates while incoming data is assessed. A further inflation wildcard flagged by Warsh is the surge in artificial intelligence infrastructure investment by major technology companies, including Google parent Alphabet, Microsoft, Amazon, and Meta Platforms.
Warsh described AI investment as "the most striking feature of the economy right now" and said the Fed is "monitoring the implications" for both inflation and employment. Spiking demand for memory chips and processors has sent semiconductor prices soaring, contributing to price increases for laptops, tablets, and video game consoles. Source: AP News, reporting by Christopher Rugaber.
Source: apnews.com