Kevin Warsh will report to Congress for the first time as Fed chair. Lawmakers are interested in the most important issues: interest rates, inflation, and the independence of the U.S. central bank. Warsh himself has barely appeared in public during his month as head of the regulator and has preferred not to comment on where the economy might be headed.
The first appearance will take place Tuesday before the House Financial Services Committee. Just hours before the hearing begins, the June consumer inflation report will be released, so the discussion will almost certainly start with those numbers.
The next day, Warsh will head to the Senate. His remarks will follow the release of the producer price index. Most likely, the fresh statistics will be one of the main topics at both sessions.
Congress Awaits Answers Amid Talk of a Rate Hike
The probability of a rate hike by September is now estimated at 70%, according to the Atlanta Fed Market Probability Tracker. Since January, U.S. government bond yields have risen, and traders are increasingly preparing for more expensive loans.
So far, Warsh has not given the market the usual hints. At the beginning of the month, he only joked about the timing of the next meeting.
“I said I wouldn’t make forecasts because we meet in six weeks. But I have an update: now the meeting will be in four weeks.”
He also made it clear that debates within the Fed will remain behind closed doors.
“I want us to have a good family argument. When we go into the room and close the door, the discussion will be serious. But I have nothing more to add for now.”
In its latest report, the Fed again acknowledged that inflation is still not under control. Prices are being pushed up by expensive energy due to the Middle East conflict, as well as import tariffs, which have made some household goods noticeably more expensive.
Additional pressure comes from high demand for chips and other components for data centers. Service sector prices have also risen, but the Fed does not believe this growth will last long.
Calculations from one of the models the Fed relies on support a higher rate than the current 3.5–3.75%. However, the regulator itself emphasizes that this is just one benchmark, not a signal for future decisions.
“These recommendations do not take into account that the economy would have developed differently if the rate had actually followed the trajectories proposed by the models. Therefore, such estimates should be treated with caution,” the report says.
Inflation, Artificial Intelligence, and the Independence of the Fed
On Tuesday, June inflation data will be released. Economists expect to see the annual rate fall to 3.8% after May’s 4.2%. One reason cited is cheaper oil. Oil prices fell after the agreement between Donald Trump and Iran, although now the impact of this deal has already noticeably weakened.
Core inflation, excluding food and energy, is forecast to drop from 2.9% to 2.8%. These figures are sure to be one of the first topics at the hearings. Lawmakers will try to find out whether the new data changes the Fed’s plans for the interest rate. Based on his recent speeches, Warsh himself is unlikely to elaborate on the regulator’s position.
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The minutes of the June Fed meeting showed that the regulator has two main scenarios for the rest of the year. If price growth continues to slow, the rate may remain unchanged or be cut. If inflation proves more persistent than expected, another hike will also remain on the table.
There are topics Warsh is more willing to discuss. Recently, he created five working groups within the Fed. One will focus on how the regulator communicates with the public, another will review the approach to balance sheet management.
The remaining groups will focus on the quality of economic statistics, inflation forecasting, and the impact of artificial intelligence on employment and productivity.
Separately, lawmakers want to understand whether the White House can influence Fed decisions. Trump continues to demand rate cuts, while the regulator is trying to contain inflation.
Last week, Warsh stated that the Fed’s position on this issue will not change.
“We have been an independent central bank for a very long time. That will continue. There will be no changes here.”
Another topic will be artificial intelligence. Congress may ask whether spending on chips, electricity, and data center construction is fueling inflation.
Warsh has not given a clear answer yet. He noted that the impact of AI is already visible on the demand side, and added that over time the technology should also affect supply.
