Warsh tells Senate inflation fight not over as CPI cools to 3.5%

Fed Chair Kevin Warsh told the Senate Banking Committee on Tuesday the central bank's fight against inflation is not finished, a day after data showed the annual CPI rate cooled to 3.5% in June from 4.2% in May.

"I'm not going to show up here and say, 'mission accomplished.' There's plenty of work to do," Warsh said in testimony that largely echoed his appearance before the House Financial Services Committee a day earlier.

The core CPI, which strips out volatile food and energy costs, fell to 2.6% from 2.9%, below forecasters' expectations. The Fed's target range for the federal funds rate stands at 3.5% to 3.75%, where it has remained since the last adjustment. Of the 19 anonymous projections in the Fed's latest Summary of Economic Projections, eight saw the committee holding rates steady through year-end, nine saw room to hike, and one saw room to cut.

With the next FOMC decision due July 29, the June CPI report has shifted expectations. Most forecasters now expect the Fed to leave rates unchanged, though renewed U.S.-Iran hostilities have pushed Brent crude above $87 a barrel, threatening to reignite energy-driven price pressures. "The only caveat for monetary policy is that this is just one month," said Eugenio Aleman, chief economist at Raymond James.

Warsh, who took office as Fed chair earlier this year, used his Senate appearance to reinforce the message that the central bank will not waver from its 2% inflation target. He described inflation as "a choice" the Fed does not intend to make, and noted that prices have remained above target for 63 consecutive months. "The longer that prices have been above the inflation target, it's usually a bit harder to dislodge them and get them lower," he said.

The chair also addressed the tension between monetary policy and other government actions, including tariffs and the military conflict with Iran. Asked by lawmakers how interest rate policy can counteract tariff-driven price increases or oil supply shocks, Warsh acknowledged the limits of the Fed's toolkit. "We have tools that are powerful," he said, adding that the central bank accounts for changes in trade, immigration, and geopolitical conditions when making decisions. "Often, they have an effect on prices in the short term. Our business is whether those prices in the short term end up spreading out."

Task Forces and Communications

Warsh highlighted the five task forces he created after his first FOMC meeting in June, covering communications, balance sheet policy, data sources, productivity and jobs, and inflation frameworks. The groups, led by economists including Harvard's Greg Mankiw, Nobel laureate Thomas Sargent, and former Bank of England governor Mervyn King, are expected to deliver recommendations by year-end. "There's going to be nothing held in secret here," Warsh told lawmakers.

On communications specifically, Warsh pushed back against pressure to provide explicit forward guidance, saying the Fed should be "somewhat more circumspect" in its messaging. "We want to get policy right, and I think being somewhat more circumspect in our communications, at least me, is a better way of calling balls and strikes," he said.

Independence and the Labor Market

Several lawmakers pressed Warsh on his independence from President Donald Trump, who has publicly pressured the Fed to lower rates. Warsh said he is "absolutely" committed to setting policy independently from politics. "Outside the four walls of the Federal Reserve, there is no doubt a lot of politics. My goal inside the central bank is for there to be no politics," he said.

On the labor market, Warsh noted that the U.S. has added about 552,000 jobs in the first half of 2026, though June hiring came in at 57,000 — well below the 110,000 consensus. The unemployment rate ticked down to 4.2% in June, though Glassdoor chief economist Daniel Zhao said it fell for "the wrong reasons," as fewer Americans are looking for work.

The last time the Fed faced a similar inflation trajectory — above target for an extended period while the labor market showed mixed signals — it maintained a tightening bias before eventually cutting rates as growth slowed. Warsh gave no indication the current committee is preparing to follow that path, instead emphasizing data dependence and the need to avoid repeating the mistakes of 2021 and 2022, when the Fed waited too long to respond to rising prices.

This article is for informational purposes only and does not constitute investment advice.