Federal Reserve Chair Kevin Warsh appeared before House lawmakers on July 14 and Senate lawmakers on July 15 to answer questions on inflation, interest rates, artificial intelligence (AI), jobs and the Fed’s independence. During both hearings, Warsh said his main goal is to bring US inflation back to the Federal Reserve’s 2% target.
Event Context
Inflation in the US had reached 9% in 2022 after the COVID-19 pandemic before slowing down. Inflation started rising again after the Iran war began on February 28, increasing from 2.4% in February to 4.2% in May, mainly because higher oil prices pushed up gas costs. Inflation later slowed to 3.5% in June after the U.S. and Iran reached a temporary ceasefire.
Smith said many workers fear AI could threaten their jobs. Warsh replied that the task force will hear from workers, employers and others affected by AI before reaching conclusions. He said the Fed will consider both parts of its mission — stable prices and maximum employment — while reviewing the task force’s work.
Team Analysis
Warsh said the Fed also considers trade policy, immigration policy and military conflicts when making monetary policy decisions. Warsh said those factors may raise prices for a short time, but the Fed focuses on whether those increases spread throughout the economy.
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Democratic lawmakers also questioned whether Warsh can remain independent from President Donald Trump. Warsh said Trump has not tried to influence his monetary policy decisions since he became Fed chair. Under Warsh’s leadership, the Federal Open Market Committee kept interest rates unchanged at its June meeting. After that decision, President Trump reportedly responded by saying, “Whatever”.
Match Outlook
Sen. John Kennedy. Senator John Kennedy asked whether the recent rise in inflation would be temporary or permanent. Warsh answered, “It’s not going to be permanent on my watch”, accoridng to USA Today.
Warsh said he believes AI will make the US economy richer and more productive over time. However, he admitted AI will be disruptive and some workers could lose their jobs because of new technology, as noted by USA Today.
Warsh said he cannot guarantee that everyone’s job will be safe as AI expands. His comments came after more than 200 economists and researchers urged policymakers to address the risk of AI causing large-scale job losses. Warsh said the huge amount of private investment in AI makes him believe companies expect strong returns and long-term economic benefits.
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Warsh said the Fed has “no tolerance” for high inflation and is fully committed to bringing prices under control. Lawmakers asked Warsh how the Fed can reduce prices when many reasons for inflation, such as the Iran war, are outside the Fed’s control, according to USA Today.
Warsh explained that the Fed cannot directly lower grocery or gas prices, but it can stop higher prices from spreading across the wider economy using tools like interest rates and its balance sheet. Warsh repeated that inflation will not stay high under his leadership, according to his reply to
Economist James Knightley of ING said Warsh’s promise to fight inflation is not surprising because keeping prices stable is one of the Fed’s main responsibilities. The Fed also has another major responsibility — supporting maximum employment. Normally, the Fed fights inflation by raising interest rates, according to USA Today.
Skanda Amarnath, executive director of Employ America, said Warsh is unlikely to keep raising interest rates every time inflation stays above target because the Fed must also think about the impact on jobs and the economy, according to USA Today.
Democratic Representative Sean Casten asked whether the Fed’s interest rate policy can cancel out policies such as tariffs or higher oil prices. Casten said he does not believe interest rates can undo tariffs or expensive oil. Warsh replied that the Fed’s tools are powerful but mainly work by preventing short-term price increases from becoming long-term inflation..
Republican Senator Thom Tillis asked whether net-zero immigration could slow U.S. economic growth, according to USA Today. Warsh replied that immigration policy is decided by Congress and the administration, but it does affect the country’s economic output because it changes the size and productivity of the workforce.
Lawmakers also questioned Warsh about the new Fed task forces he has created. These task forces will study the Fed’s communications, balance sheet policy, inflation framework, data sources, productivity and jobs. Warsh recently called the government’s Consumer Price Index (CPI) and Producer Price Index (PPI) imperfect ways of measuring inflation. He said he hopes the new task forces can help improve how inflation is measured in today’s changing economy.
One of the biggest discussions focused on the Fed’s AI productivity and jobs task force. The task force includes Marc Andreessen, Charles Jones and Asha Sharma. Democratic Senator Tina Smith questioned whether AI industry leaders can fairly study AI’s impact because they could financially benefit from the technology, according to USA Today.
