Federal Reserve Chairman Kevin Warsh vowed that the central bank is fully committed to lowering inflation to the 2% target.
Warsh, who replaced Jerome Powell as Fed chairman in May, testified Tuesday before the House Financial Services Committee, where he was repeatedly asked about the Fed’s efforts to drive inflation down after years of too-hot price growth.
Despite President Donald Trump’s desire for the Fed to lower rates, Warsh reiterated that his No. 1 goal right now is to see inflation return to healthy levels.
Warsh said that at his first Fed meeting as chairman, there was “no willingness to tolerate higher prices.”
“There was a commitment that was unambiguous and unanimous that we’re going to deliver,” the chairman said. “And we’re not finding acceptable the higher inflation that has endured in this country for more than five years.”
The Fed has what is referred to as a dual mandate: price stability and maximum employment. When inflation is rising, the major tool it has to fix that is to raise interest rates. In general, Fed officials hope that higher rates will lead to less borrowing and spending, thereby lowering inflationary pressures.
The Fed also has long had a 2% target for inflation. During the hearing, Warsh said he was on Capitol Hill to “double down” on that commitment to bringing inflation down to that level. But the chairman also acknowledged how consumers are feeling pinched by years of high inflation.
“As we discuss privately, I’ll say publicly: My broader definition of price stability is a change in prices such that households and businesses don’t have to worry about it, don’t have to think about it,” Warsh told lawmakers.
Warsh has spoken frequently about his desire to return the Fed to its core remit and has said he believes the Fed has strayed from its mandate in recent years. The chairman has said he thinks the Fed under previous leadership has pressed beyond its statutory authority, for instance, into climate change policy.
Rep. Roger Williams (R-TX) asked about how Warsh intends to ensure the Fed stays focused on things like inflation and employment.
“I can make that commitment to you, congressman, because that’s how we keep politics out,” Warsh told the panel. “That’s how we stay independent in the conduct of monetary policy. The Federal Reserve is not a repair shop for broken statutes, or we aren’t empowered to go wander into areas outside of our remit.”
During the Tuesday hearing, Warsh was also repeatedly asked about Fed independence and his ability to silo the unique federal agency from influence from the White House.
Rep. Nydia Velazquez (D-NY) asked Warsh whether he believes that he works for Trump.
“If I’m permitted to say, we’re an independent central bank,” he responded. “We’re honored to be independent. Our independence came from you.”
He was also asked what he would do if Trump targeted him or fellow Fed governors because he was upset about interest rate policy.
“I would continue to do my job,” Warsh said.
Also, while Trump frequently criticized Powell for not cutting interest rates, he has seemed to back off on such an aggressive posture with Warsh for the time being.
The Washington Examiner spoke with Trump by phone last Friday morning, and the president indicated that he will defer to Warsh on interest rates.
TRUMP SAYS HE WILL DEFER TO FED CHAIRMAN KEVIN WARSH ON RATE HIKE BEFORE MIDTERM ELECTIONS
“There should be a reduction, but I’ll go with the chairman,” Trump said.
Warsh is scheduled to testify again on Wednesday before the Senate Banking, Housing, and Urban Affairs Committee.
