The Fed chairman takes questions about inflation, interest rates, and the path forward for the US economy as lawmakers consider the Federal Reserve’s monetary policy strategy.
The chairman of the Federal Reserve Kevin Warsh On Tuesday, he told House lawmakers that central bank policymakers “do not tolerate continued inflation” in his first testimony as Fed chief.
Warsh said in his testimony prepared for the House Financial Services Committee that he is concerned inflation influenced the Fed’s decision to hold the benchmark federal funds rate steady at 3.5% to 3.75% at the June Fed meeting.
“The Fed’s first goal is to get monetary policy right — or as close to it as possible. That’s our clear and constant goal, our guiding star,” he said. “And if we get the policy right – and we will – the inflation of the last five years will be a thing of the past.”
“My colleagues and I recognize that high inflation has become an unnecessary burden on American households and businesses. While monthly price fluctuations are inevitable — especially in an unsettled world — latent inflation over the long term is largely determined by monetary policy,” Warsh said.
“Our Committee members do not tolerate continued inflation. And we share a strong commitment to restoring price stability,” he added.
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Fed Chairman Kevin Warsh told the House Financial Services Committee that the central bank will not tolerate continued inflation. (Graeme Sloan/Bloomberg via Getty Images)
Warsh was asked how he would respond if President Donald Trump referred to him or other policymakers in an attempt to influence interest rate policy, and the chairman emphasized that the Fed is an independent central bank – the Supreme Court has recently confirmed.
“The Supreme Court said the Federal Reserve and the conduct of monetary policy are independent. To the extent there were questions about it, the Court answered those questions,” Warsh said, adding that he would continue to do his job if the president tried to fire him.
Warsh went on to say that his goal at the Fed “is to have no politics. Until there’s politics, we’re going to get rid of them.”
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Warsh said the Fed is paying attention to both sides of the central bank’s mandate to promote full employment and stable prices. (Al Drago/Bloomberg via Getty Images)
The Federal Reserve is tasked by Congress with pursuing the dual mandate of promoting full employment and price stability consistent with the long-term objective of 2% inflation. Warsh said the Fed will pay attention to both sides of the mandate, although he noted that the inflation portion of the mandate is above target at this time.
“In my opinion, these two parts of the mandate do not conflict. This is not a suggestion or a proposal. If we can do more to bring low and stable prices, then we can get so that people do not worry about inflation, employers will want to hire more workers,” he explained.
“You gave us money, we take both parts of it seriously,” Warsh said. “Looking out the window right now, labor markets look in pretty good shape. We have some work to do on inflation.”
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Warsh was asked during the hearing about the emergence of artificial intelligence (AI) and its impact on the economy and the risks it could pose as the technology becomes more widely accepted. He responded that it presents “probably the most significant change in our economy in my lifetime as an adult,” and that it presents unique opportunities and challenges.
“It is not the job of the central bank to provide or be sure what the results will be in the next 12 or 24 months, but we realize that the US may be the big winner. The United States is at the forefront of this technology, both human capital and the capital provided by investors happen here. So the successful frontier of these technologies is happening in the US,” he said.
“This is a broad benefit to our economy, but I don’t want to sound complacent about it,” noting that AI technology “presents threats when it finds its way into the hands of adversaries,” and that it will test the infrastructure of the Fed and financial institutions as bad actors seek to exploit the tools.
This is a developing story. Please check back for updates on Warsh’s testimony.
