Kevin Warsh will face Congress for the first time as Fed chair as lawmakers press him on interest rates, prices and central bank independence. His first month on the job was uneventful. Kevin didn’t say much about the economy.
The House Financial Services Committee will question Kevin at 10 a.m. in Washington on Tuesday, after the Bureau of Labor Statistics releases consumer inflation numbers for June. He will appear before a Senate committee on Wednesday after the agency releases producer price data during a scheduled appearance this week.
Lawmakers press Kevin for answers as price expectations rise
The Atlanta Fed’s market probability tracker puts the chance of a rate increase by September at 70%. Treasury yields have risen since January, as traders factor in rising borrowing costs.
Kevin refused to give the usual clues. “I said I wouldn’t give guidance because we’ll be meeting in six weeks, but I have an update for you, we’ll be meeting in four weeks,” he said earlier this month.
He said the discussion within the Fed would remain behind closed doors. “I want us to have a good family fight… When we get into that room and close the door, we’ll have a good discussion, but I don’t have much more for you than that.”
The Fed’s report on Friday said inflation remains too high. High energy costs associated with the conflict in the Middle East remain part of the problem. Tariffs have raised the prices of household goods. Strong demand for chips and other parts used in data centers has added to the pressure.
Service prices also rose, although officials said they did not expect the rise to continue.
One version of the Fed’s policy suggests a federal funds rate is higher than the current range of 3.5% to 3.75% because inflation has risen. Officials cautioned against reading it literally.
“However, the prescriptions described here ignore that the economy would have developed differently if the interest rate had followed one of the paths set by the rules, and therefore, these prescriptions must be interpreted carefully,” the report said.
Congress questions Kevin about inflation, artificial intelligence, and the independence of the Fed
The June CPI is expected to show annual inflation at 3.8%, down from 4.2% in May. Lower oil prices are expected to help. These prices fell after Trump reached an agreement with Iran, although that agreement now appears to have lost much of its value.
Core inflation, which excludes food and energy, is expected to reach 2.8%, compared to 2.9% in the previous month. Kevin will almost certainly be asked what these numbers mean for rates. His latest approach suggests he may keep the answer limited.
Minutes from the Fed’s June meeting showed two possible paths for the rest of the year. If inflation falls, officials may be able to keep interest rates the same or lower them. If price pressure remains stubborn, they could raise interest rates again.
Kevin can be more relaxed when he talks about the five business teams he has created. One will evaluate the Federal Reserve’s communication strategy with the public. The other will look at balance sheet policy. The other three will evaluate data quality, inflation forecasting, and the impact of artificial intelligence on employment and productivity.
Lawmakers are expected to test Kevin on whether the White House can influence the central bank. Trump has pushed for lower interest rates, while the Federal Reserve tries to control inflation.
Kevin addressed this issue last week. “We have been an independent central bank for a very long time. We will be an independent central bank at this moment, and we will not see any changes to that.”
Artificial intelligence will be another topic. Congress may wonder whether spending on chips, power and data centers could fuel inflation. Kevin didn’t provide a firm answer last week. AI is already showing up in demand, he said, adding that he is “confident that we will see it on offer at some point.”
