Warsh Goes to Washington: Fed Chair Talks Inflation, Independence, and Crypto 🥁

Federal Reserve Chairman Kevin Warsh told Congress that the Fed's dual mandate of price stability and full employment are not in conflict, arguing that controlling inflation would make employers more willing to hire workers. During testimony on the state of the U.S. economy, Warsh said economic activity remains strong and financial markets are generally functioning in a healthy manner, while pointing to a mixed picture in the housing market. He attributed that mixed picture to inflation remaining above the Fed's target for an extended period, which he said is putting pressure on housing finance and affordability, and stated that the Fed could mitigate the problem by ensuring price stability. "The two elements of the Fed's dual mandate are not conflicting. The more successful we are in controlling inflation, the more willing employers will be to hire workers," Warsh said. He reiterated the Fed's commitment to its 2% inflation target, described the labor market as showing "remarkable resilience," and stated that the central bank has the necessary policy tools to bring inflation back to target.

Warsh declined to provide forward guidance on the future course of interest rates. "The more we focus on our duties, the further we can stay away from politics," Warsh said, adding that the Fed will continue to make monetary policy decisions independently. When asked how he would act if President Donald Trump attempted to interfere with Fed policy, Warsh said he would continue to fulfill his duties and insist on the independent determination of monetary policy. The chairman also said the Fed will review its current inflation framework to better understand the root causes of inflation and evaluate policies to combat price pressures, with working groups on the topic still in the research and evaluation phase. He added that the discussions will begin among the Fed's 19 policymakers and that the process will be conducted in an open and transparent manner, with research findings and policy recommendations shared regularly with the public.

Warsh, while commenting on cryptocurrencies during the session, made remarks acknowledging digital assets as part of the broader financial landscape without detailing specific policy steps. On the Fed's balance sheet, he said it is not only a part of financial market operations but also a direct part of monetary policy, and added that his views on the Fed's massive balance sheet are well-known. He said he did not want to prejudge the decisions of a newly formed balance sheet working group, and concluded by emphasizing that the Fed will continue to act independently as it assesses inflation, employment and financial conditions.