Warsh vows to deliver price stability, Fed ‘regime change’
Federal Reserve Chairman Kevin Warsh said policymakers at the central bank have no tolerance for high inflation, reiterating a vow to tame price growth that
Federal Reserve Chairman Kevin Warsh said policymakers at the central bank have no tolerance for high inflation, reiterating a vow to tame price growth that has been elevated for five years. “The members of our committee have no tolerance for persistently elevated inflation,” Warsh said Tuesday in testimony before lawmakers. “And we share a resolute commitment to restoring price stability.” The new Fed chairman has emphasized policymakers’ commitment to tackling inflation since he took office in May, and said the number one objective is to get monetary policy right. “If we get policy right — and we will — the inflation surge of the last five years will be a thing of the past,” Warsh said in remarks to the House Financial Services Committee. Warsh’s appearance before the panel comes amid warnings from several other Fed policymakers that higher interest rates may be needed to curb inflation. The testimony was prepared prior to the Bureau of Labor Statistics’ release of fresh inflation data that showed consumer prices declined in June for the first time in six years and a key gauge of underlying inflation was little changed. Warsh downplayed the figures during his testimony, saying he didn’t want to read too much into any one data point. “There might be some that look at this morning’s data and say, ‘Oh, mission accomplished. Everything is swell,’” Warsh said. “That is not my view.” The consumer price index fell 0.4% from May, mostly reflecting a slump in energy prices amid a pause in the US and Iran war.
A resumption of hostilities has since sent oil prices surging again. Core CPI, which excludes volatile food and energy components, was flat. On a year-over-year basis, core prices increased by a slower-than-expected 2.6%. “The very benign June CPI inflation report gets Warsh off the hook in terms of pressure to hike near-term and allows him to position the Fed as resolutely committed to bringing inflation back to target without fueling expectations of a July move,” economists at Evercore ISI wrote in a note to clients, referring to the Federal Open Market Committee meeting scheduled for July 28-29. Lawmakers pressed Warsh on how he plans to tackle inflation, his plans for a shake-up of how the Fed communicates with investors and the public and his relationship with President Donald Trump. The president has persistently called for lower interest rates and put immense pressure on the Fed to deliver them, which has led some of Warsh’s critics to question whether he would independently set policy. Asked whether he would make decisions based on economic data even if Trump publicly criticizes him, Warsh responded, “I will.” Economic outlook Warsh was upbeat on the overall economy, describing the labor market as broadly stable with few signs of layoffs and solid nominal wage growth. The Fed chief was more circumspect on the artificial intelligence boom, which he said is driving a surge in business investment but also posing uncertainties for the economy. “We don’t know the extent to which the economy will benefit from the AI build-out,” Warsh said.
The BriefWire