Fed’s Warsh says Congress testimony will stress restoring price stability
Warsh reiterated inflation is too high while avoiding a specific rate path; Natixis economist Christopher Hodge warned that stance and reduced forward guidance could create a “credibility trap.”
Federal Reserve Chair Kevin Warsh used his July 14-15 congressional testimony to repeat that inflation is too high and said it would not remain elevated “under my watch,” while declining to signal whether the Fed may raise, cut or hold rates. He said the central bank would assess both interest rates and the balance sheet, and that five outside-expert-led task forces will recommend changes to the Fed’s monetary policy process, including communications, by December. Warsh also said AI-driven pressures are likely to lift “measured prices” over the next 12 months, though whether that becomes inflation depends on the Fed’s response. As colleagues including Lisa Cook, John Williams and Christopher Waller gave clearer views on inflation and rates, Natixis US chief economist Christopher Hodge warned Warsh could face a “credibility trap” if a hawkish opening and reduced reliance on forward guidance leave him vulnerable to reacting to volatile CPI readings from tariffs or energy shocks. Natixis expects no Fed rate changes through 2026.
- dot plot: The Fed’s chart of anonymous policymakers’ interest-rate projections, published quarterly.
- forward guidance: Central bank signaling about future policy intentions.
- reaction function: A policymaker’s explanation of how they would respond to changing economic conditions, such as inflation or employment data.