Federal Reserve Chair Kevin Wash, in prepared remarks for congressional hearings this week, vowed to conquer inflation and establish sound monetary policy.
While committing to a forceful stance against inflation, the central bank chief stated the U.S. economy's fundamentals are solid, and investments in artificial intelligence will deliver substantial economic dividends.
Wash criticized previous Fed policy, directly pointing to flaws in the flexible average inflation targeting framework introduced in 2020: no central bank aims for a modest inflation increase only to end up with a high inflation crisis, and this framework was a significant error.
The entire Federal Reserve Board is resolutely opposed to tolerating persistently high inflation and is firmly committed to restoring price stability.
Federal Reserve Chair Kevin Wash labeled inflation an "unjust burden" and once again called on Tuesday for a paradigm shift in the Fed's policy approach.
"Inflation acts as a hidden tax on American households and businesses, and we are determined to eliminate this tax entirely," he stated. "This necessitates a paradigm shift in monetary policy. We must re-examine our entire toolkit of policy instruments—some of which have proven effective, while others have completely failed."
Wash is scheduled to testify before committees in both houses of Congress this week, with his prepared remarks significantly strengthening the anti-inflation stance. Simultaneously, he expressed confidence in the resilience of the U.S. economy and strongly praised the growth momentum from business investment, particularly in artificial intelligence.
Wash reiterated his commitment to formulating monetary policy appropriate for the economy, aiming to fully resolve the inflation challenge that has plagued the Fed for the past five years.
This congressional testimony comes just two months into Wash's tenure as Fed Chair. By statute, the Fed Chair is required to report to Congress on monetary policy twice a year and answer lawmakers' questions.
"We are at a critical historical juncture, and everyone must shoulder the responsibility of our times," Wash said. He will testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday.
"The Fed's primary task is to formulate precise, appropriate monetary policy, striving to follow the optimal path as closely as possible. This is our enduring core objective, the guiding beacon for our actions," he added. "Once monetary policy is properly calibrated—and we will achieve this—the high inflation of the past five years will finally be relegated to history."
Wash assumed leadership of the Fed as U.S. inflation has consistently exceeded the 2% policy target since 2021. During his nomination hearing earlier this year, he stated that inflation was the result of deliberate policy choices. In his first press conference as Chair, he repeatedly emphasized that lowering the cost of living for Americans was a core priority.
Wash further criticized past Fed policies, focusing particularly on the flexible average inflation targeting framework implemented in 2020. This policy allowed for inflation to run moderately above the 2% target for some time following periods of low inflation, with the original intent of addressing imbalances in the labor market.
"No central bank sets out to raise inflation just a little, only to lose control and trigger a severe inflation crisis. This framework itself was a major mistake. It failed to achieve its intended goals, and I am pleased that the previous leadership discontinued this framework before I took office," Wash said.
Echoing the views of his predecessor, Jerome Powell, Wash stated that prolonged high inflation imposes an unnecessary and heavy burden on American families and businesses, driving up costs across all sectors of the economy and daily life. He noted that the significant resurgence of inflation was largely driven by soaring energy prices.
"Monthly price fluctuations are inevitable, especially amid global turbulence, but medium- to long-term core inflation levels are primarily determined by monetary policy," he asserted. "The entire Federal Reserve Board will not tolerate persistently high inflation. We are united and steadfast in our commitment to restoring price stability."
Regarding the broader macroeconomic environment, Wash stated that the U.S. economy continues to expand solidly, demonstrating strong resilience in the face of various external shocks.
He highlighted that business investment is currently the most prominent feature of the economy.
"The pace of business investment continues to rise and is even accelerating. The core drivers are the wave of new data center construction and the massive demand for supporting AI software and hardware," Wash explained.
"The exact magnitude of the economic boost from the expansion of artificial intelligence remains uncertain, but it is foreseeable: what is now separately termed 'AI investment' will, in the future, simply be categorized as routine business investment."
Wash has previously suggested that the productivity surge from AI could have a dampening effect on inflation, though many economists and some policymakers within the Fed have questioned this view.
In addition, Wash detailed the five specialized task forces he has established to comprehensively review the Fed's entire operational framework. These groups will focus on five key areas: policy communication mechanisms, financial technology, balance sheet management, economic data measurement standards, and the framework for inflation observation and analysis.
Wash stated that the comprehensive review by these five task forces marks the opening of a new chapter for the Fed and represents the implementation of the "policy paradigm shift" he promised in an interview last year. However, unlike his previous tone, his statements as Chair have been more measured, avoiding accusations that long-serving Fed staff are responsible for systemic issues.
"It is a great honor to return to the Federal Reserve and work alongside such a dedicated, professional, and talented group of colleagues," Wash concluded.
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