Federal Reserve chairman Kevin Warsh told Congress Tuesday that the central bank remains determined to bring inflation back to target, but declined to offer any hint about whether that could require higher interest rates.
Why it matters: Warsh is trying to break with the Fed’s post-financial crisis habit of telegraphing its next move, leaving investors with fewer clues about where policy is headed.
What they’re saying: “The 63 months of inflation above target has been an unfair burden and has been a tax on the American people and businesses. We plan on getting rid of that tax,” Warsh told the House Financial Services Committee.
- Warsh defended his effort to roll back traditional forward guidance, arguing that the Fed should stop signaling a likely path for interest rates before policymakers have all the facts.
- “We’re human and if we were to give you my projection today about what we’ll do when we meet in two weeks … then we would find ourselves taking information that’s consistent with our priors and rejecting information that’s inconsistent,” he said. “It’s not the way we want to do things.”
Zoom out: Warsh testified as some top Fed officials have begun openly discussing what could prompt a rate hike — including as soon as later this month, at the Fed’s next policy meeting.
- His appearance also came soon after fresh inflation data showed that price pressures cooled more than economists expected. Consumer prices rose 3.5% over the past year in June, or 2.6% excluding food and energy, down from 4.2% and 2.9%, respectively, in May.
- Asked how this morning’s CPI report affects his outlook, Warsh said, “It’s one data point. … I don’t overread or cherry-pick data. There might be some that would look at this morning’s data and say, ‘Oh, mission accomplished. Everything is swell.’ That is not my view.”
Between the lines: Warsh also largely avoided describing what economic conditions would prompt the Fed to raise rates — leaving investors to infer the central bank’s thinking from speeches by other officials.
- Fed governor Christopher Waller said Monday that while inflation could still drift back toward 2% without further tightening, “there is still a credible” chance that upcoming data shows inflation remains elevated or accelerates again.
- If that happens, he said, “tighter monetary policy” would be warranted in the near term — suggesting a rate hike could be on the table at the Fed’s two-day meeting that concludes July 29.
- New York Fed president John Williams last week offered an even more concrete benchmark, saying monetary policy would need to respond if the Fed’s preferred core inflation gauge consistently exceeded 0.2% a month.
Of note: Warsh pointed to an investment boom fueled by AI-related spending, which has created some inflationary pressures.
- “We at the Fed are monitoring the implications for inflation and the labor market,” Warsh said in his opening statement.
- The technology has so far not led to job losses, he later noted.
- “It looks to me as though this technology hasn’t displaced workers at this point. It’s made them a bit more productive — and I say a bit because I think the productivity is in front of us,” Warsh said.
Editor’s note: This story has been corrected to reflect that the Fed’s next policy meeting concludes on July 29.
This story has also been updated with additional details.
