Warsh Faces Inflation Credibility Test After Hill Hearings
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- Warsh completed back-to-back House and Senate testimony Tuesday and Wednesday, drawing few major slip-ups but bipartisan agreement that prices remain too high — a setup that demands quick delivery on his inflation promises.
- June CPI fell 0.4% and PPI fell 0.3%, unexpected declines Warsh called "imperfect measures of underlying inflation" while pledging the Fed retains control over medium-term prices.
- Warsh appointed a task force to rethink how the Fed measures inflation, but it won't deliver results for months — yet the Fed meets in two weeks to set rates while FOMC officials appear divided on whether AI-driven data-center spending is stoking generalized prices.
- Fed Governor Lisa Cook warned AI spending could drive "significant price increases for chips, other high-tech equipment, software, and utilities," and said "inflation risks now outweighing employment risks" in a Wednesday speech.
- Warsh framed the AI debate as "one of the good family fights," arguing supply will catch up with demand — unlike foreign conflicts that shrink supply — but Democratic senators noted his AI task force includes no obvious labor representative.
- Warsh revived money-supply reporting in his monetary policy report to Congress, breaking with the Powell-era view that the measure is essentially irrelevant to inflation: "I have this old-fashioned view that monetary policy has something to do with money."
- Markets now overwhelmingly expect the Fed to raise interest rates by year's end, though Warsh has avoided any commitment — putting the chair on the wrong side of consensus before the next FOMC meeting.
Why it matters: Warsh risks a credibility-damaging outcome on both sides of the rate decision: if he loses the AI-spending argument and rates rise, he looks sidelined; if he wins and inflation reaccelerates, the damage is worse. Markets overwhelmingly expect a hike by year-end, giving the chair roughly two weeks to get ahead of consensus before the FOMC meets.
