Federal Reserve Chairman Kevin Warsh stated on Wednesday that inflation risks in the United States have eased as recent inflation expectations have receded. However, the Fed remains firmly committed to bringing inflation down to its 2% target and emphasized that the central bank will maintain its independence in monetary policy decisions, free from political influence.
Following Warsh's remarks, the three major U.S. stock indices trimmed their losses. The Dow Jones Industrial Average turned positive, the Nasdaq Composite narrowed its decline to 0.31%, and the S&P 500 edged down by just 0.05%.
Speaking at the European Central Bank's Central Banking Forum in Sintra, Portugal, Warsh noted that over the past few weeks, both U.S. inflation expectations and inflation risks have decreased, providing a positive signal for the future path of inflation. "In the last four weeks of this period, inflation expectations have come down, and inflation risks have also diminished," he said.
Nevertheless, he reiterated that the Fed's goal of restoring price stability remains unchanged. "We will achieve price stability in the United States. This is a mission shared by the Federal Open Market Committee (FOMC), and our objective is to accomplish this task," Warsh stated. "As for the specific strategies and tactics to be employed, that will need to be determined based on subsequent developments."
When discussing monetary policy, Warsh once again stressed that the Fed will preserve its independence in policy formulation. Recently, U.S. President Donald Trump has repeatedly called for the Fed to implement significant interest rate cuts to support economic growth. However, Warsh indicated that the Fed would not alter its decision-making principles due to external pressure. "The Federal Reserve has long been an independent central bank, is now, and will remain so in the future," he affirmed.
Notably, Warsh clearly stated again that the Fed will no longer provide "forward guidance" regarding the future path of interest rates as it has in the past. When the moderator inquired about the possibility of a rate hike at the July meeting, Warsh joked that they were attempting to get him to break his "no forward guidance" rule. He said the Fed would "chart a new course" in its approach to monetary policy communication.
"I hope that when the Committee meets four weeks from now, we can have a full discussion," Warsh said, referring to the next FOMC monetary policy meeting scheduled for July 28-29.
In fact, during his first press conference as Fed Chair last month, Warsh stated that the FOMC unanimously agreed that, in the current environment, forward guidance was no longer a suitable tool for policy communication. He emphasized this point again: "Last month I said that, with the next meeting just six weeks away, I would not provide forward guidance. Now, with the next meeting only four weeks away, that principle still applies."
Although the Fed kept the target range for the federal funds rate unchanged at 3.5% to 3.75% last month, the latest economic projections show a growing number of officials support further rate hikes within the year to address the most severe inflation situation since 2023. The latest "dot plot" indicates that nine out of eighteen policymakers anticipate at least one rate increase this year. However, Warsh himself did not disclose his own interest rate forecast. Currently, interest rate futures markets are pricing in expectations for the Fed to raise rates by at least 25 basis points before the end of the year.
Additionally, Warsh provided an update on the internal reform efforts underway at the Fed. He mentioned that the Fed had previously established five specialized working groups responsible for evaluating issues such as policy communication, the balance sheet, data application, productivity and employment, and the inflation framework.
Warsh revealed that information regarding the membership of these working groups could be announced as early as next week. The groups will include not only internal Fed personnel but will also invite external experts to participate, with some members coming from outside the United States.
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