Federal Reserve Chair Kevin Warsh stated Wednesday that the central bank would remain independent and focus on bringing down inflation, a stance that likely precludes the interest rate cuts President Donald Trump has advocated.
Speaking at a Federal Reserve conference in Sintra, Portugal, Warsh remarked that any businesses or households expecting the Fed to tolerate inflation above 2% would likely be disappointed. "We're going to deliver price stability," he said.
The Federal Reserve typically combats inflation by increasing borrowing costs. When questioned about President Trump's frequent desire for lower interest rates, Warsh emphasized the Fed's autonomy from daily political influences. "We’ve been an independent central bank for a very long time," he stated. "We’re going to be an independent central bank at this moment and you’re going to see no changes to that."
These comments suggest a shift in Warsh's position since he succeeded Jerome Powell as chair on May 22. He had previously called for lower rates in the past year, while essentially campaigning for the position. Since assuming the role of chair, Warsh has appeared to move away from that stance, instead signaling a priority on reducing inflation.
However, Warsh declined to indicate specific actions the Fed might take to achieve this goal. This aligns with his opposition to "forward guidance," a practice where central bank leaders publicly foreshadow their future policy decisions. "I'm not going to make a judgment now," Warsh said during a panel discussion with other central bankers. "The tactics, the strategy, and the rest, that's still to come," he added.
At his first press conference last month, Warsh also highlighted his objective of returning inflation to the target rate. Investors on Wall Street anticipate the Fed might increase its key interest rate as early as September, from its current level of approximately 3.6% to around 3.9%.
During the Federal Reserve's last meeting on June 16-17, nearly half of the 19 policymakers indicated support for higher rates this year. Eight favored no change, and one projected a rate cut. Warsh did not submit a forecast due to his stance against providing guidance.
The economic landscape has evolved since President Trump initially nominated Warsh in January. Inflation rose to a three-year high of 4.2% in May, partly influenced by the impact of the Iran war on gas prices. However, with a peace agreement now reached, gas prices have decreased, suggesting that inflation may have peaked. Federal Reserve officials might decide to wait and observe inflation trends if oil and gas prices continue to fall toward pre-war levels.
Warsh also noted on Wednesday that indicators suggest the threat of sustained inflation has lessened. He specifically pointed to inflation expectations, which reflect public and financial market projections for future inflation as measured by surveys and bond prices. Both measures have declined over the past month.