Fed Chair Warsh tells Congress the FOMC has ‘no tolerance for persistently elevated inflation’
New Federal Reserve Chair Kevin Warsh used the opening statement of his first testimony before Congress to present a positive depiction of the state of the economy, and a vision for monetary policy centered on the price stability side of the central bank’s dual mandate.
“The Fed's number one objective is to get monetary policy right—or as near to it as we possibly can,” Warsh told the Committee on Financial Services of the U.S. House of Representatives. “That is our clear and constant aim, the star we steer by. And if we get policy right—and we will—the inflation surge of the last five years will be a thing of the past.”
The Fed chair said that while monthly price fluctuations are inevitable, “underlying inflation over longer time horizons is determined largely by monetary policy,” adding that the members of the FOMC “have no tolerance for persistently elevated inflation.”
Warsh painted a positive picture of the U.S. economy, saying that “economic activity is expanding at a solid pace,” that “household consumption growth is moderate,” while manufacturing output has moved up steadily this year,” but noted that the housing sector “continues to lag.”
The Fed chair characterized surging business investment as the “most striking feature of the economy right now.”
“The rapid pace—which appears to be accelerating—reflects, in large part, the construction of data centers and the immense demand for the AI-related equipment and software that fill them,” he said. “We at the Fed are monitoring the implications for inflation and the labor market.”
Turning to the supply side, Warsh said that productivity growth has been strong, and that strength began before the current gains from AI adoption. “America's labor market appears broadly stable. Job creation has kept pace with the workforce. The unemployment rate is low and has changed little over the past year,” he said. “We're seeing relatively few layoffs, only slight variance in the rate of job vacancies, and solid growth in nominal wages.”
The Fed chair also referred to the five task forces he appointed to explore ways to improve their conduct of monetary policy. “We have a duty to point the institution forward—to take a fresh look at current practices to make sure we are serving our objectives,” he said. “The purpose here is to equip the Fed to make better decisions in monetary policy and to put these years of high inflation behind us.”
