Federal Reserve Chair Kevin Warsh is set to testify before the House Financial Services Committee on Tuesday at 10 a.m. in Washington, with the hearing scheduled immediately after the Bureau of Labor Statistics releases June consumer inflation data. He will also appear before a Senate panel on Wednesday, coinciding with the release of producer price figures.
Markets price 70% chance of rate hike by September
According to the Atlanta Fed’s Market Probability Tracker, traders assign a 70% probability that the Fed will raise rates by September. Treasury yields have risen steadily since January, reflecting bets on tighter policy. Despite these expectations, Warsh has withheld guidance on future moves. Earlier this month he said, “I said I’m not going to give forward guidance because we’re meeting in six weeks, but I have an update for you, we’re meeting in four weeks.” He emphasized the need for internal debate: “I want us to have a good family fight… when we get into that room and shut the door.”
Inflation data shows CPI at 4.2% year-over-year in May, with the market expecting a drop to 3.8% in June. Core CPI is expected to edge down from 2.9% to 2.8%. Warsh’s remarks will be read alongside the actual numbers — a smaller-than-expected decline could reinforce tightening bets.
Energy costs, tariffs, and AI demand fuel inflation
A recent Fed report described inflation as still running too high, pointing to elevated energy costs linked to Middle East conflicts, increased tariffs on household goods, and strong demand for semiconductors and data center components. While service-sector prices have climbed, policymakers do not see this as permanent. A widely cited Fed policy rule recommends a federal funds rate above the current 3.5%–3.75% range, but the report cautioned that “the prescriptions shown here ignore that the economy would have evolved differently if the policy rate had followed one of the paths prescribed by the rules.”
Warsh also acknowledged that AI demand effects are emerging, saying “I’m confident we’re going to see it in supply at some point.” Lawmakers are expected to press him on whether rising investment in chips, computing power, and large data centers could add to inflationary pressures.
Independence under scrutiny, AI task forces launched
Warsh will face questions on the central bank’s autonomy, especially amid past White House calls for lower rates. He stated last week: “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 on that.” Former President Donald Trump had advocated for easier policy, but the Fed remains focused on fighting inflation.
Artificial intelligence will also be a major topic. Warsh has established five task forces reviewing communication strategy, balance sheet policy, data quality, inflation forecasting methods, and AI’s impact on employment and productivity. Minutes from the Fed’s June meeting show officials weighing two scenarios: holding rates or cutting if inflation cools, and raising again if price pressures persist.