Fed Chair Warsh Reaffirms Independence and Inflation Focus at Portugal Conference

New Federal Reserve Chair Kevin Warsh told a central-bank conference in Sintra, Portugal, that the Fed will remain independent and work to bring inflation back to its 2% target, a stance that makes immediate rate cuts unlikely.

"If businesses or households thought the Fed would accept inflation above 2%, I guess they'd be disappointed. We're going to deliver price stability," Warsh said. He added that the Fed has been independent for a long time and will continue that tradition, emphasizing that political considerations will not dictate policy.

Warsh, who succeeded Jerome Powell on May 22, has shifted from previously advocating lower rates to a focus on curbing inflation. He declined to outline specific policy steps, consistent with his opposition to forward guidance, saying, "I'm not going to make a judgment now. The tactics, the strategy, and the rest, that's still to come."

The Fed’s last meeting showed mixed views among policymakers, with about half favoring higher rates, eight preferring no change and one supporting a cut. Warsh did not provide a forecast, citing his stance against providing guidance.

He noted that recent data suggest inflation pressures are easing, pointing to declining inflation expectations measured by surveys and bond markets. Warsh also highlighted that the economy’s hiring gains and a projected low unemployment rate of 4.3% could reduce pressure for rate reductions.

Regarding technology, Warsh said artificial intelligence could eventually boost productivity and ease inflation, though he did not comment on its short-term impact. He mentioned the establishment of five Fed task forces to study issues such as AI and productivity.

The comments come as investors anticipate a possible rate hike as early as September, moving the benchmark rate from roughly 3.6% to about 3.9%.