WASHINGTON (AP) — Federal Reserve Chair Kevin Warsh said in written testimony Tuesday the Fed will make high inflation “a thing of the past," yet provided no signal about the central bank's next steps.
Fed policymakers “have no tolerance for persistently elevated inflation,” Warsh will say when he testifies at 10 a.m. Eastern before a House committee. “And we share a resolute commitment to restoring price stability.”
Yet about half of the 19 members
of the Fed's interest rate-setting committee expect they will have to raise the central bank's key rate by the end of the year to defeat inflation, while nearly half have penciled in no change or even a rate cut. Warsh faces a stiff challenge in reconciling the divided committee while navigating a rapidly-changing economic outlook.
In keeping with his stated policy of providing less guidance about the Fed's policies, he did not signal in his testimony whether rate increases would be necessary to combat inflation, which has reached 4.1%, according to the Fed's preferred measure, far above its 2% target. He will deliver the testimony to the House Financial Services Committee Tuesday morning and then face questions from committee members.
The renewal of the Iran war has caused oil prices to climb again after they had fallen back to nearly their prewar level. Gas prices had fallen about 20% from their peak but have also increased in the past week and are still about 35% higher than they were when the U.S. attacked Iran Feb. 28.
The government latest report released Tuesday showed that prices dropped 0.4% in June from May, the largest monthly drop in four years. On a yearly basis, inflation declined to 3.5%, down from a year-over-year gain of 4.2% in May and lower than many economists expected.
Some Fed officials have argued that underlying inflation, even excluding the impact of gas prices, remains elevated and may require higher interest rates to defeat.
Another factor that could boost inflation for the rest of this year is the massive investment in artificial intelligence infrastructure by the so-called “hyperscalers,” such as Google parent Alphabet, Microsoft, Amazon, and Meta Platforms. The spiking demand for memory chips and processors has sent semiconductor prices soaring, leading to price hikes for laptops, tablets, and video game consoles.
Warsh said Tuesday that AI investment is “the most striking feature of the economy right now" and said the Fed is “monitoring the implications” for inflation and jobs.
Other Fed officials have stepped in to provide guidance as Warsh has declined to do so. Fed Governor Christopher Waller on Monday said that another “hot” inflation report Tuesday would mean the Fed would have to consider raising rates “in the near term.”
But last week John Williams, president of the Federal Reserve Bank of New York, said that if core inflation stays at a 0.2% monthly pace for the rest of this year, the Fed could avoid hiking rates. Williams' approach implies the Fed would keep rates steady for some time while it monitors incoming data.
