Warsh refuses to signal rate path despite cooling June inflation

Federal Reserve Chair Kevin Warsh pushed back against market optimism over cooling consumer prices during his first congressional testimony since taking office in May. While inflation fell to 3.5% year-over-year in June from 4.2% the prior month, Warsh warned against declaring victory. "There might be some that look at this morning's data and say, 'mission accomplished,'" he told the House Financial Services Committee. "That is not my view."

The headline drop was largely driven by a 0.4% monthly decline in gas prices. However, core inflation, which excludes food and energy, remained unchanged month-over-month and sat at 2.6% annually, still above the central bank's 2% target. Warsh noted that Fed policymakers "have no tolerance for persistently elevated inflation" and share a "resolute commitment to restoring price stability."

That caution is rooted in fresh supply-side shocks threatening to reverse recent progress. The renewal of conflict in the Middle East has already pushed oil prices higher, erasing much of a 20% decline from their peak. Gas prices remain roughly 35% above their levels before the U.S. attacked Iran on February 28.

Geopolitics is not the only upward pressure on prices. Warsh identified massive artificial intelligence infrastructure spending by Alphabet, Microsoft, Amazon, and Meta as "the most striking feature of the economy right now." Surging demand for semiconductors is lifting prices for laptops, tablets, and gaming consoles, a dynamic the Fed is actively monitoring.

Against this backdrop, Warsh is maintaining a strict policy of providing minimal forward guidance, creating a vacuum for fixed-income investors. Projections released last month show about half of the 19 Fed policymakers expect higher interest rates by year-end, while the other half favor holding steady or cutting.

With the chair withholding direction, market participants are left extrapolating from other officials. Governor Christopher Waller warned on Monday that another hot inflation reading would force the Fed to consider near-term rate hikes. Conversely, New York Fed President John Williams suggested that if core inflation holds at a 0.2% monthly pace, the central bank can avoid hiking altogether.

Warsh also faced sharp questions from Democratic lawmakers regarding potential interference from President Donald Trump, who frequently attacked his predecessor. Warsh pledged to "follow the law and follow the data," pointing to a recent Supreme Court decision allowing Governor Lisa Cook to remain on the board as evidence of the institution's legal independence.