Fed Chair Kevin Warsh says central bank has 'no tolerance' for elevated …

Federal Reserve Chair Kevin Warsh reiterated the central bank’s “no tolerance” for persistently elevated inflation during his first congressional testimony as head of the Fed, emphasizing a resolute commitment to restoring price stability. The remarks, delivered before the House Financial Services Committee on Tuesday, underscored a hawkish stance on monetary policy while leaving key questions about future rate decisions unanswered.

Warsh, who assumed the chairmanship in May 2026, framed inflation as a “burden” on American households and businesses, calling for a return to the Fed’s 2% annual inflation target. “The members of our Committee have no tolerance for persistently elevated inflation,” he stated, vowing that the central bank would “get policy right” to ensure the inflation surge of the past five years becomes “a thing of the past.” His remarks aligned with broader concerns about the Fed’s 2020 monetary policy framework, which he criticized as a misstep that allowed inflation to spiral out of control.

The 2020 framework, which introduced flexible average inflation targeting, allowed inflation to rise above 2% for periods following prolonged undershooting. Warsh argued this approach “imposed an undue tax” on Americans and called for a review of the central bank’s inflation strategies. He highlighted the creation of task forces to reassess the Fed’s approach, including one focused on understanding the drivers of inflation and potential policy adjustments. “We’re still dealing with the legacy of policy errors in 2021 and 2022,” he said, noting that once inflation takes hold, it becomes “more expensive and harder to bring down.”

Warsh’s testimony coincided with mixed economic data. June’s Consumer Price Index (CPI) showed annual inflation cooling to 3.5% from 4.2% in May, driven by falling gas prices. However, he cautioned against interpreting the single month’s figures as a sign of victory. “Some might say today’s data means mission accomplished,” he said, “but that is not my view.” Core inflation, which excludes energy and food, remained above the 2% target at 2.6%, signaling continued pressure on the Fed to act.

The central bank’s divided leadership added complexity to Warsh’s challenge. While some policymakers have signaled support for rate hikes to curb inflation, others advocate for cuts or stability. Warsh, however, declined to provide guidance on future moves, echoing his preference for “circumspection” in communications. “We want to get policy right,” he said, “and I think being somewhat more circumspect in our communications is a better way of calling balls and strikes.” This approach has left markets and lawmakers speculating about the Fed’s next steps, particularly as geopolitical tensions in the Middle East and rising semiconductor prices pose new inflationary risks.

Warsh also addressed the growing influence of artificial intelligence (AI) on the economy, calling it “the most significant change in our economy in my adult lifetime.” While acknowledging the potential for AI to drive productivity, he warned of risks, including the possibility of bad actors exploiting the technology. “The efficient frontier of these technologies are happening in the U.S.,” he said, but added that the Fed must remain vigilant against “threats when they find their way into adversary’s hands.”

The testimony came amid renewed focus on the Fed’s independence. Warsh cited the Supreme Court’s recent decision to block President Donald Trump’s attempt to remove Fed Governor Lisa Cook as evidence of the central bank’s autonomy. “To the extent there were questions about it, the Court answered those questions,” he said, reaffirming his commitment to following data and law over political pressure. This stance was tested when lawmakers questioned how he would respond to potential interference from the administration, to which Warsh replied, “My commitment to you is to follow the law and follow the data.”

Despite his focus on inflation, Warsh acknowledged the Fed’s dual mandate of fostering maximum employment and price stability. He noted that the labor market remains “broadly stable” but emphasized that inflation remains the central challenge. “The more we can do to deliver low and stable prices, the more employers are going to want to hire more workers,” he said, framing the two goals as complementary rather than conflicting.

As the Fed navigates these pressures, Warsh’s leadership will be tested by the need to balance inflation control with economic growth, all while maintaining public confidence in the central bank’s independence. With the Federal Open Market Committee’s next meeting approaching, markets await further clarity on the path forward—though Warsh’s reluctance to provide forward guidance suggests the Fed may continue to operate with deliberate ambiguity.