Warsh promises to ensure price stability, Fed “regime change” | Today’s news

Federal Reserve Chairman Kevin Warsh said policymakers at the central bank do not tolerate high inflation and reiterated a pledge to rein in price increases that have been elevated for five years.

“The members of our committee do not tolerate persistently elevated inflation,” Warsh said in testimony before lawmakers on Tuesday. “And we share a resolute commitment to restoring price stability.”

Since taking office in May, the Fed’s new chairman has emphasized policymakers’ commitment to tackling inflation, saying the number one goal is getting monetary policy right.

“If we get the policy right — and we will — the surge in inflation over the past five years will be a thing of the past,” Warsh said in remarks to the House Financial Services Committee.

Warsh’s appearance before the panel comes amid warnings from several other Fed policymakers that higher interest rates may be needed to curb inflation. The testimony came before the Bureau of Labor Statistics released new inflation data that showed consumer prices fell in June for the first time in six years and that a key measure of core inflation was little changed.

Warsh played down the numbers during his testimony, saying he didn’t want to read too much into one data point.

“There may be some who look at this morning’s data and say, ‘Oh, mission accomplished. Everything is bloated,'” Warsh said. “That’s not my opinion.

The consumer price index fell 0.4% from May, mostly reflecting a slump in energy prices amid a lull in the U.S.-Iran war. Renewal of hostilities has since sent oil prices back up. Core CPI, which excludes volatile food and energy components, was flat. Year-on-year, core prices rose by a slower-than-expected 2.6%.

“The very dovish June CPI inflation report puts Warsh off guard in terms of near-term upward pressure and allows him to position the Fed as committed to bringing inflation back to target without fueling expectations of a July move,” economists at Evercore ISI wrote in a note to clients, referring to the Federal Open Market Committee meeting scheduled for March 28-29.

Lawmakers pressed Warsh on how he intends to deal with inflation, his plans to change the way the Fed communicates with investors and the public and his relationship with President Donald Trump. The president has persistently called for lower interest rates and put enormous pressure on the Fed to meet them, leading some of Warsh’s critics to question whether he would set policy independently.

Asked if he would make decisions based on economic data, even as Trump publicly criticizes him, Warsh said: “I will.

Economic outlook

Warsh was bullish on the overall economy, describing the labor market as broadly stable with few signs of layoffs and solid growth in nominal wages.

The Fed chief was more cautious about the artificial intelligence boom, which he said is leading to an increase in business investment but also brings uncertainty to the economy.

“We don’t know how much the economy will benefit from building artificial intelligence,” Warsh said. “New opportunities for the economy present new challenges for policymakers. We at the Fed are watching the implications for inflation and the labor market.”

Read also | US consumer inflation cools to 3.5% in June as fuel prices fall

Minutes from the June 16-17 FOMC meeting reflected policymakers’ growing concerns about inflation, just as worries about the labor market eased slightly.

Officials at the meeting, the first under Warsh, voted unanimously to keep the Fed’s benchmark interest rate in the range of 3.5% to 3.75% for the fourth straight time.

New rate projections released alongside the decision showed nine officials forecast at least one quarter-percentage-point increase this year, with six forecasting at least two. The other nine expected no movement or cut. Warsh, who has criticized so-called forward guidance that offers clues on the path to rates, declined to provide a forecast.

During a hearing from lawmakers on Tuesday, Warsh made it clear that the Fed remains committed to each of its congressionally assigned mandates to ensure price stability and maximum employment.

“We take both parts of it seriously,” he said. “Looking out the window right now, labor markets look to be in pretty good balance. We have some work to do on the inflation front.”

Task forces

Warsh doubled down on the language he used before being nominated by Trump for the Fed’s top job, vowing a major shakeup of the central bank.

“We need a regime change in politics and we need new thinking about practices, some of which work, some of which don’t,” Warsh said. “That’s what we want to do, and we’re just getting started.”

Warsh also said the five new central bank task forces he has set up to review and potentially reform key parts of the Fed’s policymaking are starting with a “blank sheet of paper.”

Read also | US oil tops $75 after Trump renews Strait of Hormuz blockade on Iranian ships

“They’re in discovery mode right now,” Warsh said. “I’m happy to share the results and reflections regularly between now and the end of the year, at which point I hope we’ll have some real conclusions.”

The task force leaders include prominent academics, former central bankers and corporate executives who were asked to look at the Fed’s communications strategy, the $6.7 trillion balance sheet, use and reliance on existing data sources, productivity and jobs, and inflation frameworks.

Several lawmakers asked Warsh about potential changes in Fed communications in particular.

“We want to get the policy right, and I think being a little bit more circumspect in our communication, at least for me, is a better way to call balls and strikes,” Warsh said.

Warsh did not say he would hold a news conference after every FOMC policy decision, as his predecessor, former chairman Jerome Powell, did. Asked if he might commit to a standard that would trigger a news conference, Warsh said any changes in the Fed’s communications would not be about “hiding the ball.”

Disclaimer: This story was published from the agency’s news feed without editing the text.

Get the latest updates in real time

Stay informed about the latest trends, Indian, World and US news.

HomeNewsUs NewsWarsh promises to deliver price stability, Fed ‘regime change’More