Warsh tells Congress the Fed will keep pressing inflation lower

Federal Reserve Chair Kevin Warsh told lawmakers he is focused on pushing inflation back down after five years of price pressure. For everyday investors, that message matters because Fed policy helps set the tone for loan costs, savings yields and how markets value future corporate profits.

In prepared remarks for congressional hearings this week, Warsh said the Fed’s main job is to “get monetary policy right.” Monetary policy is the Fed’s use of interest rates and other tools to influence borrowing, spending and inflation.

Warsh is scheduled to speak Tuesday before the House Financial Services Committee and Wednesday before the Senate Banking Committee. Fed chairs are required to appear before Congress twice a year to present a monetary policy report and answer questions from lawmakers.

The testimony comes about two months after Warsh began his term as Fed chair. According to CNBC, he inherited a central bank that has seen inflation run above its 2% target since 2021.

Warsh told lawmakers that elevated inflation has weighed on households and businesses, with higher costs spreading broadly through the economy. He said the latest price pressure has come in significant part from rising energy prices.

“The members of our Committee have no tolerance for persistently elevated inflation. And we share a resolute commitment to restoring price stability,” Warsh said in the prepared remarks.

The Fed’s inflation target matters because the central bank uses it as a guide for policy. When inflation stays too high, the Fed can keep interest rates higher to slow demand. That can cool price increases, while also making mortgages, credit cards and business financing more expensive.

Warsh also said the U.S. economy is still growing at a solid pace and has shown resilience despite recent developments. He singled out business investment as the most notable feature of the current economy.

Much of that investment, Warsh said, is tied to artificial intelligence. He pointed to data center construction and demand for AI equipment and software as key drivers.

Warsh said the full payoff from the AI buildout is not yet clear. He added that spending now labeled “AI investment” may eventually be viewed as ordinary business investment as the technology becomes more widely used.

CNBC reported that Warsh has previously argued an AI-driven productivity boom could help reduce inflation pressure. Some economists and other Fed policymakers have questioned that view, according to CNBC.

Warsh also gave more detail on five task forces he has set up to review how the Fed operates. He said the groups will study the central bank’s communications, technology, balance sheet, economic data and approach to inflation.

The review follows Warsh’s earlier pledge of a “regime change” at the Fed, CNBC reported. Since taking office, Warsh has used a more conciliatory tone toward the institution, saying it has been a privilege to work with Fed staff and colleagues.

This story draws on original reporting from CNBC.