Kevin Warsh, the new Federal Reserve Chair, emphasized the Fed’s independence and commitment to reducing inflation, potentially sidelining President Donald Trump’s push for rate cuts. Speaking at a central bank conference in Sintra, Portugal, Warsh made it clear that stability in prices is a priority. „If businesses or households thought the Fed would accept inflation above 2%, they’d be disappointed. We’re going to deliver price stability,” he noted.

The Federal Reserve typically addresses inflation by increasing borrowing costs. Despite Trump’s frequent calls for lower rates, Warsh highlighted the institution’s independence from political pressures. „We’ve been an independent central bank for a very long time,” he reaffirmed. „We’re going to be an independent central bank at this moment, and you’re going to see no changes to that.”

Since taking over as chair on May 22 from Jerome Powell, Warsh’s stance on interest rates appears to have evolved. While he previously advocated for lower rates during his campaign for the position, he now signals a focus on controlling inflation. Yet, he refrained from detailing specific strategies to achieve this, maintaining his stance against „forward guidance”—a practice where central bank leaders signal future policy moves.

„I’m not going to make a judgment now,” he said during a panel discussion. „The tactics, the strategy, and the rest, that’s still to come,” he added.

At a prior news conference, Warsh reiterated his goal to bring inflation back to target levels. Investors on Wall Street anticipate that the Fed might increase its key interest rate as early as September, potentially moving it from the current 3.6% to around 3.9%. In the Fed’s previous meeting, a near split among policymakers showed support for higher rates, no change, or a cut. Warsh himself provided no forecast, maintaining his position against forward guidance.

The economic landscape has shifted since Trump nominated Warsh in January. Inflation rose to a three-year high in May, reaching 4.2%, largely due to the Iran war’s effect on gas prices. However, a recent peace agreement has led to falling gas prices, suggesting inflation may have peaked. Fed officials might choose to wait and see where inflation stabilizes if energy prices revert to their pre-war levels.

Warsh pointed to recent indicators showing that concerns over persistent inflation have lessened. He referred to measures such as public inflation expectations, gauged through surveys and bond pricing, which have shown declining projections recently.

A critical issue for Warsh is whether he will need to raise rates in upcoming meetings to underline his anti-inflation commitment. If declining gas prices and inflation negate this necessity, he might decide against rate hikes. Concurrently, as hiring has increased and a positive jobs report is anticipated, showing an unemployment rate at 4.3%, the pressure on the Fed to lower borrowing costs could decrease.

Warsh also reiterated confidence that, over time, advancements in artificial intelligence will bolster the economy’s production capacity, mitigating inflationary pressures. Yet, many economists argue this shift may take substantial time. Presently, rapid investment in AI infrastructure is driving up prices for semiconductors and computing equipment, contributing to inflation concerns. Warsh did not directly address whether AI spending affects inflation, indicating that he has established five task forces at the Fed to examine AI and other issues.

„This is as significant a time to be a central banker as any since a crisis during my adult lifetime,” Warsh remarked.