Federal Reserve Chair Kevin Warsh told Congress that the central bank will make high inflation "a thing of the past," calling it a tax on Americans and businesses that must be eliminated, even as he declined to signal the Fed's next move on interest rates. His testimony came the same day consumer prices fell 0.4% in June — the sharpest monthly drop since April 2020.
Warsh's appearance before the House Financial Services Committee marked his first congressional testimony since becoming chair less than two months ago. He told lawmakers the Fed has "no tolerance for persistently elevated inflation" and shares "a resolute commitment to restoring price stability." But he wouldn't say whether the central bank plans to raise, hold, or cut rates when policymakers next meet.
Inflation Data Brings Relief, But Questions Remain
The June consumer price index report showed annual inflation cooling to 3.5% from 4.2% in May. Core inflation, which strips out volatile food and energy costs, remained flat for the month and rose just 2.6% year-over-year, down from 2.9% in May. Energy prices drove much of the decline, falling 5.7% in June — the steepest drop in six years — though they're still up 15.7% annually. Gasoline and fuel oil each tumbled more than 9% during the month.
The data came in weaker than economists expected. Traders immediately lowered the odds of a September rate hike, though most still anticipate the Fed will tighten policy then. The central bank currently holds its key overnight rate between 3.5% and 3.75%.
Heather Long, chief economist at Navy Federal Credit Union, said June "finally brought some relief on inflation." She added that this "takes the pressure off the Federal Reserve and allows the central bank to wait and see what happens." But she warned the relief might prove "short-lived as the war in Iran re-starts."
Chair Rejects 'Mission Accomplished' Narrative
Warsh pushed back hard against any suggestion that one month of favorable data means victory over inflation. "There might be some that look at this morning's data and say, 'mission accomplished,'" he said. "That is not my view." He emphasized that the Fed's "number one objective is to get monetary policy right — or as near to it as we possibly can."
The chair called for "a regime change in policy" and revealed the central bank has created five task forces examining communications, technology, the balance sheet, economic data, and inflation analysis. "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," Warsh said.
AI Investment Boom Reshapes Economic Landscape
Warsh highlighted business investment as "the most striking feature" of the current economy, noting the rapid pace "appears to be accelerating." He pointed specifically to data center construction and "the immense demand for the AI-related equipment and software that fill them." The chair predicted what's now called "AI investment" will soon be called just "investment" as the technology becomes embedded throughout the economy.
The Fed faces a deeply divided rate-setting committee. About half of the 19 policymakers penciled in higher interest rates by year's end in forecasts released last month, while another half signaled support for keeping rates unchanged or even cutting them. Fed Governor Christopher Waller said Monday that another hot inflation report would force the Fed to consider raising rates soon. John Williams, president of the Federal Reserve Bank of New York, suggested last week that if core inflation stays at 0.2% monthly for the rest of the year, the Fed could avoid hiking.
Warsh told Rep. Gregory Meeks, a New York Democrat, "My commitment to you is to follow the law and follow the data, follow our very best judgment." He cited the Supreme Court's recent decision allowing Fed governor Lisa Cook to remain on the board as evidence the court views the Fed as independent. "To the extent there were questions about it, the court has answered those questions," he said.
The chair acknowledged renewed Middle East conflict could reverse inflation progress. He's scheduled to appear before the Senate Banking Committee on Wednesday.
Why This Matters:
The Fed's credibility hinges on whether it can finish the job on inflation without triggering unnecessary economic damage. Warsh's refusal to declare victory reflects appropriate caution — one month of data doesn't erase five years of price surges that have eroded purchasing power and forced families to make harder choices. His framing of inflation as a "tax" on Americans resonates because that's exactly what it is: an invisible levy that hits lower-income households hardest. The internal Fed divisions reveal genuine uncertainty about whether the economy needs more tightening or whether current policy is already restrictive enough. Markets want clarity, but premature rate cuts could reignite inflation, while unnecessary hikes could damage the business investment boom Warsh highlighted. The AI-driven investment surge represents exactly the kind of private sector dynamism that drives long-term growth without government spending. Whether the Fed can maintain price stability while allowing that investment to flourish will determine both near-term economic performance and America's competitive position in emerging technologies.