Federal Reserve Chair Kevin Warsh told the House Financial Services Committee on Tuesday that the Fed will make high inflation “a thing of the past,” while giving lawmakers no clear signal on what comes next for interest rates. The people living with the fallout got the usual sermon from the top: patience, discipline, and faith in the central bank’s “very best judgment.”
Warsh said the Fed has “no tolerance for persistently elevated inflation” and a “resolute commitment to restoring price stability.” He told lawmakers, “The Fed’s number one objective is to get monetary policy right — or as near to it as we possibly can. That is our clear and constant aim, the star we steer by,” then added, “And if we get policy right — and we will — the inflation surge of the last five years will be a thing of the past.”
The chair also framed inflation as a burden imposed from above. “It has been a tax on the American people and businesses. We plan on getting rid of that tax,” he said, while calling for “a regime change in policy.” That’s the language of an institution trying to recast its own power as rescue. The Fed still sets the key overnight borrowing rate in a range between 3.5% and 3.75%, and the people below that machinery don’t get to vote on it.
Who Holds the Levers
Warsh said the central bank had created five task forces to examine communications, technology, the balance sheet, economic data and the way it looks at inflation. He said, “In six weeks, we have caused, I think, a sea change in new thinking-the beginning of a set of reforms that are going to be put in place across at least five dimensions in monetary policy,” and added, “We made a lot of progress in six weeks, but I think it’s important to use this opportunity wisely.”
That “opportunity” belongs to the institution, not the public. Warsh said the Fed’s economy was “expanding at a solid pace, showing resilience in the face of recent developments,” and called business investment “the most striking feature” of the current climate. He said the rapid pace of investment, which “appears to be accelerating,” reflected “the construction of data centers and the immense demand for the AI-related equipment and software that fill them.” He added, “We don’t know the extent to which the economy will benefit from the AI buildout. Yet it seems inevitable that what is now called ‘AI investment’ will soon be called just ‘investment.’”
That’s the language of corporate capture dressed up as inevitability. Data centers rise, equipment gets bought, software gets sold, and the Fed calls it resilience.
Who Pays for the Calm
The government reported the consumer price index fell 0.4% in June, the biggest monthly decline since April 2020, bringing annual inflation down to 3.5% from 4.2% in May. Core inflation, which excludes food and energy, was flat on the month and rose 2.6% from a year earlier, down from 2.9% in May. The energy index fell 5.7% in June, its biggest monthly drop since April 2020, though it was still up 15.7% on the year, driven by a 26.7% gain in gasoline.
Gasoline and fuel oil both fell more than 9% in June. Services excluding energy were flat, with shelter up 0.1% and transportation services down 0.3%. Food prices rose 0.2%, new vehicles were flat, used cars and trucks fell 0.2%, and apparel prices fell 0.6%. The numbers move, but the squeeze doesn’t vanish. Shelter still climbs. Food still rises. Gasoline still sits 15.7% higher than a year earlier.
The inflation report was weaker than economists expected and prompted traders to lower the odds of a September rate hike, though they still expected the Fed to raise rates then. Heather Long, chief economist at Navy Federal Credit Union, said, “June finally brought some relief on inflation. This takes the pressure off the Federal Reserve and allows the central bank to wait and see what happens. The concern is that this relief will be short-lived as the war in Iran re-starts. It’s too uncertain to know how the inflation story ends.” Inflation Insights President Omair Sharif said, “This is welcome news for the Fed, but it is hardly mission accomplished.”
Warsh rejected any talk of victory. “There might be some that look at this morning’s data and say, ‘mission accomplished,’” he said. “That is not my view.” He also told Rep. Gregory Meeks, a Democrat from New York, “My commitment to you is to follow the law and follow the data, follow our very best judgment.”
The Court, the Committee, and the Script
Warsh cited the Supreme Court’s recent decision allowing Fed governor Lisa Cook to remain on the central bank’s board as a sign the court sees the Fed as independent. “To the extent there were questions about it, the court has answered those questions,” he said. The legal system, the central bank, and the committee room all keep the same arrangement intact: decisions made high above, consequences handed down below.
Warsh said the renewed conflict in the Middle East could reverse some of the progress on inflation. AP said the Fed chair heads a sharply divided rate-setting committee, with about half of the 19 policymakers penciling in higher interest rates by the end of the year in forecasts released last month and another half signaling support for keeping rates unchanged or even cutting them.
Fed Governor Christopher Waller said Monday that another hot inflation report would mean the Fed would have to consider raising rates in the near term. John Williams, president of the Federal Reserve Bank of New York, said last week that if core inflation stays at a 0.2% monthly pace for the rest of the year, the Fed could avoid hiking rates.
Warsh’s first congressional appearance as chair came before the House Financial Services Committee on Tuesday, and he is scheduled to appear before the Senate Banking Committee on Wednesday. The ritual continues. The people at the bottom keep paying attention because they have to.