Fed policymakers weigh interest-rate decision amid stubborn inflation

Federal Reserve officials are convening on Wednesday to determine the next step for U.S. interest rates as inflation stays above target. The committee, which signaled a possible rate increase at its June meeting, will consider whether to hold rates steady after a modest cooling of price growth in June.

Chairman Kevin Warsh, who took over the role two months ago, told the Senate Banking Committee that the Fed has “no tolerance for persistently elevated inflation” and is committed to restoring price stability. He added that high inflation has been a “burden on American households and businesses.”

The latest data show annual inflation at 4.2% in May, the highest level in more than three years, driven in part by a spike in gasoline prices. While the slowdown in inflation could give the Fed breathing room, investors remain uncertain about the outcome of the meeting.

Warsh also highlighted the labor market’s resilience, noting that “America’s labor force appears to be broadly stable” and that job creation has kept pace with workforce growth, with the unemployment rate remaining low over the past year.

In addition to traditional economic factors, the Fed is examining the influence of artificial intelligence on productivity and employment. Warsh expressed optimism that AI could eventually raise real wages and support full employment, though he cautioned that short-term disruptions are possible. He has created task forces, composed of external economists and business leaders, to study AI’s impact and will seek their recommendations by the end of the year.