Federal Reserve Chairman Kevin Warsh once again reinforced that the United States central bank does not intend to relax its inflation target. During his participation in the annual European Central Bank forum, held in Sintra, Portugal, the official stated that the institution will remain committed to bringing inflation back to the 2% target, signaling to the market that monetary policy will remain guided by price stability.
In his remarks, Warsh highlighted that the rising cost of living remains a concern for consumers and businesses. According to him, there is no room for investors or economic agents to interpret that the Federal Reserve will accept inflation persistently above the established target.
"We all look around and see that prices are very high," said Warsh.
He then reinforced the monetary authority's position by stating:
"If there were people in the household, business, or financial sectors who thought that this central bank would feel comfortable with an inflation target above 2%, well, I think they would be disappointed. We will ensure price stability in the U.S."
Another topic addressed was the Federal Reserve's independence in the face of political pressure. Asked about the possibility of cutting interest rates in response to the wishes of current U.S. President Donald Trump, Warsh ruled out any change in the institution's actions.
"We have been an independent central bank for a long time. We will continue to be an independent central bank at this moment, and you will see no change in that."
The Fed chairman also stated that the recent Supreme Court decision involving Governor Lisa Cook reinforced the central bank's institutional autonomy, allowing the monetary authority to remain focused exclusively on its mandate to control inflation and promote economic stability.
Despite his firmness on these principles, Warsh avoided giving any indication about the next monetary policy decision. According to him, discussions about interest rates will take place only during the committee's official meeting.
"I said I would not give any forward guidance because we will meet in 6 weeks, but I have an update for you: our next meeting will be in 4 weeks."
He added:
"I want us to have a good family discussion... When we go into that room and close the door, we will have a good debate, but I do not have much more to say beyond that."
The comments come as inflation indicators remain above the Federal Reserve's target. The consumer price index (CPI) and the Personal Consumption Expenditures (PCE) index continue to indicate inflationary pressures, even with some slowdown in expectations for the coming months.
Warsh noted that the recent drop in oil prices helped reduce some of the concerns, although geopolitical conflicts could still cause new fluctuations in the energy market. At the same time, he stated that artificial intelligence is already showing an impact on the economy's demand, but it is still too early to measure its full effects on prices.
"It is up to the central bank to decide whether it is inflationary, whether it will in fact be reflected across a broader range of goods," said Warsh.
The official also again defended a smaller balance sheet for the Federal Reserve and reiterated that the interest rate should continue to be the main monetary policy instrument.
"I have always been struck by the fact that interest rate policy is the fairest across the broad spectrum of actions affecting our citizens. Interest rate policy, whether up or down, is reflected in new mortgages, and credit card debt is reflected in lending and credit channels."
Closing his participation, Warsh stated that the productivity of the United States economy showed consistent improvement over the last four quarters and expressed optimism about the gains that artificial intelligence may provide to the country's productive capacity.
"History shows that we move from periods of low productivity to periods of high productivity," he said. "There is nothing significant guaranteed at this moment, but if the last four quarters are any indication, which actually took place largely before the advent of the new breakthrough in what artificial intelligence can do, I think there are reasons for optimism."