Fed Chair Kevin Warsh says central bank has 'no tolerance' for elevated inflation
Warsh emphasized that policymakers will adjust policy to ensure price stability
The Fed chair takes questions on inflation, interest rates, and the path forward for the U.S. economy as lawmakers scrutinize the Federal Reserve’s monetary policy strategy.
Federal Reserve Chair Kevin Warsh on Tuesday told House lawmakers that the central bank's policymakers have "no tolerance for persistently elevated inflation" in his first testimony as Fed chief.
Warsh said in his prepared testimony for the House Financial Services Committee that concerns about inflation influenced the Fed's decision to hold the benchmark federal funds rate steady at a range of 3.5% to 3.75% at the Fed's June meeting.
"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," he said. "And if we get policy right – and we will – the inflation surge of the last five years will be a thing of the past."
"My colleagues and I recognize that high inflation has been an undue burden on American households and businesses. While monthly price fluctuations are inevitable – especially in an unsettled world – underlying inflation over longer time horizons is determined largely by monetary policy," Warsh said.
"The members of our Committee have no tolerance for persistently elevated inflation. And we share a resolute commitment to restoring price stability," he added.
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Fed Chair Kevin Warsh told the House Financial Services Committee that the central bank won't tolerate persistently elevated inflation. (Graeme Sloan/Bloomberg via Getty Images)
Warsh was asked about how he would respond if President Donald Trump targeted him or other policymakers in an effort to influence interest rate policy, and the chairman emphasized the Fed is an independent central bank – which the Supreme Court recently affirmed.
"The Supreme Court said that the Federal Reserve and the conduct of monetary policy is independent. To the extent there were questions about it, the Court answered those questions," Warsh said, adding he would continue to do his job if the president were to attempt to fire him.
Warsh went on to say that his goal for the Fed "is for there to be no politics. To the extent there's politics there, we're going to get rid of them."
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Warsh said the Fed is attentive to both sides of the central bank's dual mandate to promote full employment and stable prices. (Al Drago/Bloomberg via Getty Images)
The Federal Reserve is tasked by Congress with pursuing a dual mandate of fostering full employment and price stability in line with a long-run 2% inflation target. Warsh said the Fed will be attentive to both sides of the mandate, though he noted the inflation portion of the mandate is further from the goal at this time.
"In my view, the two parts of the mandate are not in conflict. This is not an either or proposition. The more we can do to deliver low and stable prices, the more we can get it such that people aren't worried about inflation, the more employers are going to want to hire more workers," he explained.
"You gave us a remit, we take both parts of it seriously," Warsh said. "As we look out the window now, the labor markets look to be in pretty good balance. We've got some work to do on the inflation front."
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Warsh was asked during the hearing about the emergence of artificial intelligence (AI) and its impact on the economy as well as the risks it may pose as the technology is adopted more widely. He responded that it presents "perhaps the most significant change in our economy in my adult lifetime," and presents unique opportunities and challenges.
"It is not the job of the central bank to provide or be certain of what the consequences are over the next 12 or 24 months, but we recognize that the U.S. is likely to be a big winner. The United States is at the forefront of these technologies, both the human capital and the capital provided from investors are happening here. So the efficient frontier of these technologies are happening in the U.S.," he said.
"This is a benefit broadly to our economy, but I don't want to sound overly complacent about it," noting that AI technologies "offer threats when they find their way into adversary's hands," 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.