Fed Chair Warsh stresses independence and commitment to price stability

Federal Reserve Chair Jerome Warsh told a panel of central bankers in Sintra, Portugal, that the Fed will remain an independent institution and that businesses and households should not expect the central bank to tolerate inflation above its 2% goal. > "We've been an independent central bank for a very long time. We're going to be an independent central bank at this moment and you're going to see no changes to that," Warsh said. Warsh, who succeeded Jerome Powell in May, indicated a shift from his earlier calls for lower rates toward a stronger emphasis on reducing inflation. He declined to provide forward guidance on the tactics or timing the Fed will use, saying, > "I'm not going to make a judgment now. The tactics, the strategy, and the rest, that's still to come." The chair noted that recent surveys of inflation expectations and bond-market data show a moderation in the public’s outlook, suggesting the risk of persistent inflation has eased. He also highlighted the potential long-term impact of artificial intelligence on productivity and price pressures, though he did not comment on whether current AI-related spending is inflationary. Fed policymakers remain divided on the path forward: at the June meeting, nearly half of the 19 voting members favored higher rates this year, eight preferred no change and one suggested a cut. Warsh did not provide a forecast, consistent with his opposition to forward guidance. Investors anticipate a possible rate hike as early as September, moving the target rate from about 3.6% to roughly 3.9%. The broader economic backdrop includes a recent decline in gas prices after a peace agreement eased geopolitical tensions, a solid jobs market with unemployment near 4.3%, and ongoing debates about the short-term inflationary effects of rapid AI investment.