Fed chair says central bank has ‘no tolerance’ for persistently high inflation

The US Federal Reserve has “no tolerance” for persistently elevated inflation, Chair Kevin Warsh said Tuesday, stressing that restoring price stability remains the central bank’s top priority.

“The members of our committee have no tolerance for persistently elevated inflation,” Warsh said in prepared testimony before the House Financial Services Committee.

“And we share a resolute commitment to restoring price stability,” he added.

Warsh, who took office in May, said getting monetary policy right was the Fed’s primary objective after US households faced elevated inflation for much of the past five years.

“If we get policy right — and we will — the inflation surge of the last five years will be a thing of the past,” he said.

The Fed chair described the US economy as broadly resilient, saying the labor market remained stable, layoffs were limited and nominal wage growth was solid.

Warsh also highlighted a surge in business investment linked to artificial intelligence, including spending on data centers, equipment and software.

However, he said the extent to which the economy would benefit from the AI expansion remained unclear.

“New opportunities for the economy introduce new challenges for policymakers,” he said, adding that the Fed was monitoring AI’s potential effects on inflation and the labor market.

At its June meeting, the Fed kept its benchmark interest rate unchanged at a range of 3.5% to 3.75% for the fourth consecutive meeting.

New projections showed nine Fed officials expected at least one quarter-point interest rate increase this year, while nine anticipated either no change or a rate cut.

The new data showed Tuesday that the monthly inflation in the US fell 0.4% in June, registering the first monthly decline in six years, while the annual inflation eased to 3.5%, as the energy price increase slowed.

‘I would continue to do my job’

Warsh pledged to preserve the central bank's independence, telling lawmakers he would continue to perform his duties without political influence.

He was asked how he would respond if President Donald Trump or other administration officials sought to pressure him or fellow Federal Reserve governors because of their votes on interest rate policy.

"It's not my intuition to engage in hypotheticals," Warsh replied. “I would continue to do my job.”

Asked whether current monetary policy is being conducted in an unusually polarized political environment, Warsh acknowledged the broader political climate but emphasized that partisan considerations should have no place inside the central bank.

"Outside the four walls of the Federal Reserve, there's no doubt a lot of politics," said Warsh. “My goal inside the central bank is for there to be no politics. To the extent there's politics there, we're going to get rid of it.”

Warsh later underscored the importance of maintaining the Fed's institutional independence, arguing that the central bank's effectiveness depends on public confidence in its decision-making.

"The independence of the Federal Reserve is part of the reason for the Fed's power," he said. “It comes not just from a printing press, though it can be useful from time to time. It comes from our credibility. Our credibility to make the best choices we can, consistent with the law that you've written for us.”

Warsh said the credibility depends on the reality and the perception of independence.

"That credibility is bolstered if we are and are perceived to be independent," he said. "That's a commitment I can make to you, because that's the way we can best do our job."