US Federal Reserve Chairman Kevin Warsh told Congress on 15 July that the central bank would bring inflation firmly under control, as policymakers held the federal funds rate steady in a range of 3.5% to 3.75% and signalled a sweeping internal review of monetary policy practices. The testimony marked Warsh's first appearance before Congress as Fed chairman.

Rate Decision and Inflation Commitment

The Federal Open Market Committee (FOMC) maintained its benchmark rate at the June meeting, opting for stability amid mixed global signals. Warsh was unambiguous on the inflation mandate: 'The members of our committee have no tolerance for persistently elevated inflation,' he told the House Financial Services Committee. 'And we share a resolute commitment to ensure price stability.'

He reaffirmed the Fed's 2% inflation target, adding: 'This isn't a time for us to pass the buck, to blame others.' The chairman acknowledged that overseas conflicts and external shocks lay beyond the Fed's control, but insisted the central bank retained the tools — interest rates and balance-sheet management — to deliver stable prices. 'We're three for three and we'll deliver,' he said.

State of the US Economy

Warsh described the US economy as continuing to expand at a solid pace despite recent global headwinds. He noted that household consumption had moderated, manufacturing output had risen steadily, and the labour market remained resilient. The housing sector, however, continued to lag behind the broader recovery.

Business investment emerged as what Warsh called 'the most striking feature' of the current economic cycle. Investment in equipment rose approximately 8% in the first quarter, while spending on high-technology equipment surged nearly 25%. Much of that acceleration, he said, reflected the rapid construction of data centres and surging demand for artificial intelligence-related equipment and software.

AI, Productivity and the Fed's Outlook

Warsh addressed the growing role of artificial intelligence in the economy with notable candour. 'At the Fed, we don't yet know fully the extent to which the economy will benefit from AI,' he said, adding: 'Yet it seems inevitable that that which we're now calling AI investment will soon just be called investment.' The Fed is actively monitoring how AI adoption could affect both employment levels and inflation dynamics, he noted, with productivity growth currently remaining strong and job creation keeping pace with workforce expansion.

Five-Area Policy Review Announced

In a significant institutional signal, Warsh announced that the Fed would conduct reviews across five areas: communications strategy, balance-sheet policy, the use of existing economic data, productivity and employment frameworks, and inflation-targeting methodology. Internal task forces are expected to present findings by the end of the year, potentially reshaping how the central bank communicates and operates going forward.

Political Pressure and Fed Independence

The hearing exposed sharp partisan fault lines. Republican committee Chairman French Hill urged the Fed to remain laser-focused on price stability. Democrat Ranking Member Maxine Waters pressed Warsh to defend the central bank's independence from President Donald Trump. Warsh was direct: 'We're an independent central bank, we're honoured to be independent.' Asked how he would respond to political pressure, he replied: 'I would continue to do my job.' The exchange underscored the heightened scrutiny the Fed faces as monetary policy intersects with an increasingly polarised political environment. With the five-area review set to conclude by year-end, Warsh's next congressional appearance will be closely watched for any shift in the Fed's policy framework.