Fed's Warsh pledges political independence as rate hike bets fall
New Federal Reserve Chair Kevin Warsh pledged to resist political pressure from the White House as softer-than-expected June inflation data sharply reduced market expectations for imminent rate hikes.
Federal Reserve Chair Kevin Warsh told lawmakers he would resist political pressure from the Trump administration, citing a recent Supreme Court ruling that reaffirmed the central bank's independence. Testifying before the House Financial Services Committee, Warsh addressed the backdrop of Trump's previous attempts to fire Fed Governor Lisa Cook and the president's past demands for rate cuts. "Outside the four walls of the Federal Reserve there’s no doubt a lot of politics," Warsh said. "My goal inside the central bank is for there to be no politics."
Warsh's testimony coincided with data showing US consumer inflation slowed more than expected to 3.5% year-on-year in June, driven by lower energy prices. The figures prompted a rapid repricing of rate expectations. Traders now assign only a 12% probability to a quarter-percentage-point hike at the July 28-29 meeting, down from 42% on Monday, according to CME Group’s FedWatch tool. The odds of a September 15-16 increase fell to 53% from roughly 75%.
Despite the easing data, Warsh has given no indication that a rate cut is imminent, maintaining a data-driven stance similar to his predecessor Jerome Powell. He has avoided offering forward guidance and declined to submit rate projections at the Fed’s June meeting, a stark contrast to former Fed Governor Stephen Miran, who consistently advocated for cuts. Analysts note that Warsh's initial appointments to internal task forces have prioritized technical expertise over ideological alignment, reinforcing perceptions of an independent central bank.
The new Fed chief is navigating a complex economic environment where inflation remains above the 2% target and renewed conflict in the Middle East threatens to reverse recent progress. Warsh also struck a cautious tone on artificial intelligence, warning that while the technology could eventually boost productivity, it is currently driving up costs in software and infrastructure. He emphasized that the timing and scale of AI's economic benefits remain uncertain.
Democrats on the committee warned Warsh not to rely solely on the Supreme Court to shield the Fed from executive branch interference. Former Cleveland Fed President Loretta Mester noted the inherent fragility of the current arrangement. "The president says he wants Kevin to do what he thinks is best," Mester said. "I don’t know how long that will last." Warsh will face further questioning on Wednesday when he appears before the Senate Banking Committee.
