Federal Reserve chairman Kevin Warsh told Congress on Tuesday that the central bank is determined to bring inflation down, but offered little guidance as to whether it may need to raise interest rates for that to happen.
The big picture: Warsh has sought to end the Fed's modern practice of giving clear signals about its expected policy path, and continued that practice in his first congressional testimony as chairman.
Previous in Politics
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 approach to roll back forward guidance in the traditional sense, arguing that the Fed should stop pre-committing to a likely path for interest rates.
- "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," Warsh said.
- "It's not the way we want to do things."
Zoom out: His testimony comes as some of his Fed colleagues are debating whether there is a need for rate hikes as early as two weeks from now — or at least what might prompt them.
- The testimony also comes as the Labor Department released new data showing the Consumer Price Index was up 3.5% over the last 12 months, or 2.6% excluding food and energy, but down from May's annual pace of 4.2% or 2.9% excluding food and energy.
Yes, but: Inflation has been persistently high, even excluding Iran war-driven impacts on energy and food prices, which has prompted some Fed officials to be more specific about the possibility that rate hikes will be needed to bring inflation down to 2%.
- Fed governor Christopher Waller said Monday that while "there is still a credible case for inflation to begin to fall back to our 2 percent goal with policy at its current setting," he is "concerned about the equally plausible case that data in the coming weeks will show that inflation will remain at its elevated level or even trend higher."
- That scenario, he said, would require tighter monetary policy in the near term, which implies a rate hike could be on the table as early as a policy meeting that concludes July 29.
- New York Fed president John Williams said last week that if core inflation by the central bank's preferred measure were to come in above 0.2% a month, "monetary policy would need to respond to that."
Between the lines: As Warsh sticks to his desire to avoid explicit "forward guidance" about policy plans, his reluctance even to say much about the Fed's reaction function — how it would respond to different economic scenarios — leaves markets guessing about the likelihood of rate hikes this year.
- In the absence of that guidance from the chairman, other members of the Fed policy committee have been filling in the gaps.
Of note: In his opening statement, the first of two days of the semi-annual monetary policy testimony required by law, Warsh noted an investment boom fueled by AI-related spending, which has fueled some inflationary pressures.
- "We at the Fed are monitoring the implications for inflation and the labor market."
- He says that "we are at a hinge point in history" and that "it's up to all of us to meet this moment."
- "The task of this generation of policymakers — and of individuals throughout the private sector — is to ensure the American economy excels far into the future."
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.
