▲ Federal Reserve Chair Kevin Warsh
Kevin Warsh, Chair of the U.S. Federal Reserve, expressed his determination on July 14 (local time) not to tolerate persistently high levels of inflation.
While reaffirming the principle of making price stability the top priority, he did not specifically mention the necessity of interest rate hikes.
Regarding pressure from U.S. President Donald Trump to cut interest rates, he made his position clear that he would protect the independence of the Federal Reserve.
Appearing at a hearing of the House Committee on Financial Services that day, Chair Warsh stated, "The Federal Reserve's primary goal is to conduct monetary policy correctly," adding, "The members share a firm commitment to not tolerating persistently high levels of inflation and to restoring price stability."
"We will get the policy right, and the inflation surge of the past five years will be a thing of the past," Warsh added.
He emphasized that inflation exceeding target levels over the past five years has acted as a tax on the American people and businesses, necessitating a policy shift.
Regarding the Bureau of Labor Statistics' announcement that day that the U.S. consumer inflation rate slowed faster than expected, he drew a line against declaring "mission accomplished," saying it is too early to be relieved.
The U.S. Consumer Price Index (CPI) for June, released that day, rose 3.5% compared to the same month last year, which was a slowdown from May (4.2%) and below the expert forecast (3.8%) compiled by Dow Jones.
Addressing the slowdown in the CPI, Chair Warsh emphasized, "Some may look at this and say 'mission accomplished,' but I think differently," adding, "We have work to do regarding inflation."
However, Chair Warsh did not specifically mention whether measures such as interest rate hikes are necessary to curb inflationary pressure.
He did, however, reiterate his stance that he would not compromise the Fed's independence in response to President Trump's pressure to cut rates.
When asked about a scenario where President Trump or his aides target him with pressure regarding monetary policy, he replied, "That is a question the courts have already answered," adding, "I will continue to do my job."
This refers to the recent Supreme Court ruling that blocked President Trump from dismissing Fed Governor Lisa Cook, effectively reaffirming the need to maintain the Fed's independence.
When asked if he works for President Trump, he replied, "We are independent, and we are proud to be independent."
When asked how he would respond if President Trump applied pressure in a direction contrary to the data, Chair Warsh said, "I will promise to follow the law, follow the data, and make the best judgment possible."
Regarding Fed reform, he predicted that results would emerge by the end of the year.
Upon taking office, Chair Warsh formed a task force (TF) in five areas, including the balance sheet and communication systems.
Chair Warsh stated that if there are changes to balance sheet policy, he would provide sufficient notice and explanation in advance.
"There will be no changes to balance sheet policy without proper prior notification to this committee and the financial markets at large," Chair Warsh emphasized.
He has previously expressed the view that the Fed's balance sheet has become bloated due to quantitative easing policies implemented to overcome economic crises and needs to be reduced.
Regarding the Fed's communication system, Chair Warsh said, "Being a little more cautious is, at least for me, a better way to call 'balls' and 'strikes'."
He added that "changes to the communication system are not intended to hide information."
At the Federal Open Market Committee (FOMC) meeting he chaired for the first time last month, Warsh eliminated forward guidance regarding future policy direction and did not submit interest rate projections.
Meanwhile, Chair Warsh identified corporate investment related to artificial intelligence (AI) as the "most prominent feature" of the current economic situation, noting that "this rapid pace reflects the massive demand for AI-related equipment and software."
However, regarding the impact of AI investment on the economy, he assessed that "we do not know to what extent the economy will benefit from the expansion of AI infrastructure."
Chair Warsh had previously expressed the view that productivity improvements resulting from AI development would act as a factor in slowing inflation in the future.
The Fed Chair appears before Congress twice a year to explain monetary policy.
This was Chair Warsh's first appearance at a congressional hearing.
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