Federal Reserve Chairman Kevin Warsh reiterated his commitment to restoring price stability in his first semiannual testimony before Congress, but stopped short of offering any clues about the near-term outlook for interest rates. Speaking just hours after a much weaker-than-expected June CPI, Warsh reiterated that the Fed’s “number one goal is to get monetary policy right” and pledged that “if we get the policy right — and we will — the high inflation of the last five years will be a thing of the past.” The testimony reinforced his long-term policy philosophy rather than changing market expectations, as investors found little to challenge the weaker inflation narrative set earlier in the day.
Warsh maintained a firm stance on inflation throughout his prepared remarks. He stressed that policymakers have “zero tolerance for persistently high inflation” and share a “firm commitment to restoring price stability.” At the same time, he avoided endorsing recent speculation about raising interest rates again in the near term despite renewed geopolitical tensions and rising oil prices. Instead, he argued that while “monthly price fluctuations are inevitable – especially in an unstable world,” inflation over longer horizons is “largely determined by monetary policy.” The combination of the weak CPI and Warsh’s refusal to indicate a policy path gives the Fed greater flexibility in assessing whether the recent rise in energy prices might develop into broader inflation.
Beyond the immediate policy outlook, Warsh continued to outline what he described as “a new chapter at the Fed.” He again criticized the central bank’s 2020 average inflation targeting framework, calling it a “mistake” that sought “a little more inflation and ended up with a little more.” He also highlighted the acceleration of business investment, especially in artificial intelligence, calling it “the most striking feature” of today’s economy, and suggested that what is now known as investment in artificial intelligence “will soon be called just investment.” Overall, the testimony was notable not so much for its new policy signals as for its confirmation of Warsh’s preference for avoiding forward guidance while emphasizing credibility, institutional reform, and a disciplined commitment to beating inflation.
