WASHINGTON: Federal Reserve Chairman Kevin Warsh has said that "inflation is a choice" and pledged that persistently high price growth would not continue under his leadership, signalling that restoring price stability remains the US central bank's overriding priority despite uncertainty over artificial intelligence, geopolitical tensions and other economic risks.
Appearing before the Senate Banking Committee on Wednesday (local time) for his first semiannual monetary policy hearing since taking office seven weeks ago, Warsh said the Federal Reserve remained firmly committed to bringing inflation back under control after more than five years above its target.
"As I've said before and will say today, inflation is a choice," Warsh told lawmakers. "The members of our committee have no tolerance for persistently elevated inflation, and we share a resolute commitment to restore price stability."
He said the Federal Open Market Committee decided at its most recent meeting to leave the federal funds rate unchanged at 3.5 to 3.75 per cent after assessing current economic conditions.
Warsh described the US economy as resilient, saying economic activity was expanding at a solid pace, household consumption remained moderate, and manufacturing output had strengthened this year. At the same time, he said the housing sector continued to lag while business investment, particularly in artificial intelligence infrastructure, had emerged as the economy's strongest driver.
"The Fed's number one objective is to get monetary policy right," he said. "If we get policy right, and we will, the inflation surge of the last five years will be a thing of the past."
Warsh acknowledged that individual price shocks, including those linked to energy markets and global conflicts, could temporarily push up costs. However, he stressed that the Federal Reserve's responsibility was to prevent those increases from becoming broad-based inflation.
"Our job" is to ensure that inflation does not become entrenched over the medium term, he said, arguing that while policymakers cannot control individual commodity prices, they can prevent higher prices from spreading throughout the economy.
Questioned by Senator John Kennedy about whether inflation would become permanent, Warsh replied: "It's not going to be permanent under my watch, Senator."
He said the Federal Reserve would reinforce its commitment to price stability by making clear that it would not tolerate higher inflation, by taking responsibility for achieving its mandate and by reviewing both interest rate policy and the central bank's balance sheet as monetary policy tools.
Warsh also announced that the Federal Reserve had established five task forces to review communications, balance sheet policy, economic data, productivity and jobs, and the inflation framework. He said the reviews were intended to improve policymaking after what he described as 63 months of inflation above the Fed's target.
"We are the Federal Reserve," he said, "and as determined as ever to fulfil our mission."
Several Democratic senators argued that inflation had been driven in part by supply shocks, including higher energy prices and tariffs. Senator Chris Van Hollen cited the conflict involving Iran and tariff policies as factors contributing to rising costs, while Warsh maintained that such developments could influence individual prices but did not diminish the central bank's responsibility for maintaining overall price stability.
The Federal Reserve has kept interest rates elevated since its campaign to curb the post-pandemic inflation surge, with policymakers continuing to balance the risks of persistent inflation against maintaining a healthy labour market. Financial markets worldwide closely monitor Fed policy because changes in US interest rates influence global borrowing costs, capital flows and currency movements.
--IANS
