Fed Chair George Warsh’s House Testimony: Inflation, Data-Driven Policy, and AI
Federal Reserve Chairman Kevin Warsh testified before the House of Representatives about data-based monetary policy choices and other issues affecting the U.S. economy.
National Economic Council Chairman Kevin Hassett said the Fed has no “excuse” to raise interest rate thresholds after the Labor Department’s latest jobs report showed inflation slowing in June.
The Fed typically raises interest rates to control inflation and lowers them to stimulate the job market. After months of rising prices and strong hiring, some forecasters were beginning to expect a rate hike soon. The ministry subsequently estimated that year-on-year inflation in June had fallen to 3.5% from 4.2% in May. This means that overall prices are still rising, but at a slower pace than last month.
In an interview on CNBC’s “Squawk Box,” Hassett called it a “remarkable” report and one of the best of his career.
“If you look at the data, you can see there’s no excuse to raise rates at all right now,” Hassett told CNBC on July 15. “I think one or two more reports like this will make them think differently.”
So far, Fed officials say this is just one positive report. “Core” inflation, which the ministry uses as a measure of price fluctuations and excludes volatile food and energy, also fell, but one reason for the decline in headline inflation was a 9.7% drop in gasoline prices in June. That same month, the United States and Iran agreed to a temporary ceasefire, which President Donald Trump subsequently declared “over.”
Warsh says it’s not ‘mission accomplished’
In Congressional testimony this week, Federal Reserve Chairman Kevin Warsh was less celebratory than Hassett.
“This is a data point,” he said on July 14, adding that one of the reasons he created a data task force at the Fed was because he didn’t want to read too much into the data or cherry-pick it. “Some people might look at this morning’s data and say, ‘Oh, mission accomplished, everything is booming.’ That’s not my view.”
President Trump has consistently urged the Fed to lower interest rates for a second term, hoping that lower borrowing costs could boost the U.S. economy. Former Federal Reserve Chairman Jerome Powell has often been the target of Trump’s complaints, but the president has not publicly pressed Warsh, who he nominated for the role in January.
“The White House fully respects that Kevin Warsh is going to lead the committee to the right answers,” Hassett told CNBC.
What are the Fed directors saying?
Since becoming Fed chairman in May, Mr. Warsh has been adamant that the central bank is fulfilling its mission of ensuring price stability for Americans, who have suffered from high inflation that exceeded the Fed’s 2% target for the past five years.
If inflation continues to trend significantly above target, the Fed may need to raise rates “in the short term” to achieve that goal, according to Fed Director Christopher Waller.
“Taking a hard look at inflation until it melts in the face of a withering gaze is not an option,” Waller told the New York Economic Association on July 13, ahead of the release of the June inflation report.
In remarks at the Treasury Club in Washington, D.C., on July 15, Federal Reserve President Lisa Cook said she was prepared to act unless inflation begins to slow, but added that she was prepared to wait “a little more time.”
“We think it would be prudent to give inflation a little more time to see how it develops going forward,” Cook said. “But going forward, I think the risks will continue to be heavily weighted toward higher inflation.”
“It will probably be over by July.”
The Beige Book, a report that provides information on economic conditions across the Fed’s 12 districts, will also help inform policymakers’ decisions at their next meeting.
The latest release on July 15 showed that U.S. employment increased in five districts, but remained largely unchanged in seven others. In contrast, only one district reported an increase in employment in the previous report released on June 3.
Meanwhile, prices rose across the board, the latest Beige Book said. Nine districts reported moderate growth, two districts reported steady growth, and one district reported modest growth. When compared to the previous reporting period, price growth was the same or slower in all 12 districts.
Skanda Amarnath, executive director of Employ America and a former New York Fed analyst, told USA TODAY, “The Fed officials’ speech reflected that ‘if we see really steep inflation fairly soon, we’ll change our view further, but we need to see those conditions to really change course.'” “It will probably pass in July.”
As of July 16, most forecasters expect policymakers to keep the federal funds rate unchanged at the end of their next meeting on July 29, in a range of 3.5% to 3.75%. Nearly half still expect a quarter-point rate hike after the next meeting in September.
Contributed by: Reuters
Contact Rachel Barber rbarber@usatoday.comFollow her on X @rachelbarber_and subscribe to her newsletter Making More of Your Money here.
