Fed chair downplays cooling inflation data, cites task forces as key to policy
WASHINGTON — Federal Reserve Chair Kevin Warsh told senators Wednesday that he would not disclose whether he has spoken with President Donald Trump since his appointment, as he navigated questions about inflation, AI infrastructure spending, and the central bank’s independence during his second day of congressional testimony.
Warsh, who took office seven weeks ago, said he has told Trump “repeatedly” and the Treasury Secretary that they “chose an independent guy to do the job and that’s exactly what I plan on doing.” He added that he does not want to be “in the business of sharing discussions that the president and I have.” The remarks came in response to a question from Sen. Chris Van Hollen, a Democrat from Maryland, about whether he had communicated with Trump since his appointment.
Trump has often demanded lower interest rates and previously attacked Warsh’s predecessor, Jerome Powell, for not cutting rates deeply enough. The administration also pushed an investigation into Powell’s brief Senate testimony on a Fed building renovation, raising concerns about the central bank’s independence.
Warsh faced a divided rate-setting committee. According to minutes from the Fed’s June 16-17 meeting, “many” of the 19 officials said that “ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity.”
The cost of computer memory and processing chips has soared as high-tech firms have spent hundreds of billions of dollars on data centers and computing equipment. Companies such as Apple, Microsoft, and Dell said they have had to raise prices on laptops, tablets, and video game consoles as a result.
Warsh said he does not view a one-time change in prices as necessarily inflationary, because “there’s a supply response.” He acknowledged that AI infrastructure spending “will increase measured prices over the course of the next 12 months,” but said whether that is inflationary “is up to the Federal Reserve.”
During his testimony, Warsh also downplayed positive inflation data released Tuesday and Wednesday. The government reported that wholesale inflation slowed in June, a day after consumer prices fell from May to June for the first time in six years. On a yearly basis, inflation cooled to 3.5% last month from 4.2% in May.
“Any central banker would be happy to have data going in the right direction,” Warsh said, but “these are all imperfect measures of the state of underlying inflation.”
Instead, Warsh said he would look to a task force he has created to study the sources of data the Fed uses. He suggested the task force could come up with ways that government statistical agencies “could do a better job in an evolving economy.”
Warsh announced the formation of five task forces last week, which will also consider the Fed’s inflation framework, the impact of AI on jobs and productivity, and the Fed’s ownership of trillions of dollars of government bonds.
When asked by Sen. John Kennedy, a Republican from Louisiana, how the Fed will determine whether inflation is “temporary or permanent,” Warsh replied, “You use five task forces to get to the big and hard questions.”
Warsh did sketch out one standard: the Fed will consider whether prices are rising in more than just a particular category, such as oil and gas, and affecting “the generalized price level.”