Fed Chair Warsh says persistent inflation will face “zero tolerance,” with rate tools still on the table

Federal Reserve Chair Warsh said in his first appearance before Congress on July 15 that the Fed has “zero tolerance” for persistently high inflation and will not alter its judgment because of improvement in a single month of CPI data.

Warsh said inflation remaining above the Fed’s 2% target for much of the past five years amounted to a failure by the central bank.

Rate tools remain part of the policy toolkit

Speaking about monetary policy, Warsh said interest-rate tools are still among the available policy options. He said he will discuss with the Federal Open Market Committee, or FOMC, when and to what extent those tools should be used to respond to inflation, but did not provide forward guidance on the future path of rates.

The market viewed the remarks as Warsh’s first public acknowledgment since returning to the Fed in May this year that tighter monetary policy could be considered if needed.

Warsh stresses Fed independence and internal reforms

Warsh also said the Federal Reserve will remain independent when setting interest-rate policy and will not be affected by political factors.

He added that multiple reform working groups have already been launched to push changes in the Fed’s economic analysis, policymaking and communication mechanisms, describing the effort as opening “a new chapter for the Federal Reserve.”