WASHINGTON: US Federal Reserve Chairman Kevin Warsh told Congress that the central bank would bring inflation under control, as policymakers held interest rates steady and signalled a sweeping review of monetary policy practices.
Making his first appearance before Congress as Fed chairman, Warsh said the Federal Open Market Committee had maintained the federal funds rate in a range of 3.5 per cent to 3.75 per cent at its June meeting.
“The members of our committee have no tolerance for persistently elevated inflation,” Warsh told the House Financial Services Committee. “And we share a resolute commitment to ensure price stability.”
Warsh said the US economy continued to expand at a solid pace despite recent global developments. Household consumption had moderated, manufacturing output had risen steadily and the labour market remained resilient. The housing sector, however, continued to lag.
“We’re committed to the 2 per cent inflation goal,” Warsh said. “This isn’t a time for us to pass the buck, to blame others.”
The Fed chairman acknowledged that overseas conflicts and other external events were beyond the central bank’s control. But he insisted that monetary policy could deliver stable prices through interest rates and management of the Fed’s balance sheet.
“We have the tools to deliver that,” he said. “So it’s a function of commitment, responsibility and tools. And we’re three for three and we’ll deliver.”
Warsh identified business investment as the most striking feature of the economy. He said investment in equipment rose about 8 per cent in the first quarter, while spending on high-technology equipment grew nearly 25 per cent.
The expansion partly reflected the construction of data centres and strong demand for artificial intelligence-related equipment and software.
“At the fed, we don’t yet know fully the extent to which the economy will benefit from AI,” Warsh said. “Yet it seems inevitable that that which we’re now calling AI investment will soon just be called investment.”
Warsh said the Fed was monitoring how AI could affect employment and inflation. Productivity growth remained strong, the labour force appeared stable and job creation had kept pace with growth in the workforce, he added.
He also announced reviews in five areas: Fed communications, balance-sheet policy, the use of existing data, productivity and employment, and inflation frameworks. The task forces were expected to share their findings by the end of the year.
The hearing also exposed sharp partisan divisions. Republican committee Chairman French Hill urged the Fed to remain focused on price stability. Ranking Democrat Maxine Waters pressed Warsh to defend the central bank’s independence from President Donald Trump.
“We’re an independent central bank, we’re honoured to be independent,” Warsh said. Asked how he would respond to political pressure, he added: “I would continue to do my job.”
Federal Reserve interest-rate decisions influence borrowing costs, the dollar and global investment flows. Changes in US monetary policy are closely watched by governments, central banks and financial markets worldwide.
--IANS
