Warsh promises inflation will be a ‘thing of the past,’ cites ‘mistake’ of prior policy

Federal Reserve Chairman Kevin Warsh vowed Tuesday to “get monetary policy right” and beat the inflation that has plagued the central bank for the past five years.

In remarks to separate congressional panels this week, Warsh repeated his recent tough talk on inflation, while also praising the strength of the U.S. economy and the benefits that come from business investments, especially including artificial intelligence.

Speaking to the House Financial Services Committee on Tuesday and then to the Senate Banking Committee on Wednesday, Warsh said, “Today we are at a turning point in history. It is the responsibility of all of us to meet this moment.”

“The Fed’s number one goal is to get monetary policy right, or as close to it as possible. This is our clear and constant goal, the star by which we are guided,” he added. “And if we get the policy right – and we will – the inflation surge of the last five years will be a thing of the past.”

These remarks came just two months after Warsh took office. Fed governors are required to appear before Congress twice a year to present their monetary policy report and then take questions from lawmakers.

Warsh inherits a Fed that has seen inflation exceed its 2% mandate since 2021. At his confirmation hearing earlier this year, the president called inflation “a choice” and repeatedly emphasized the importance of lowering the cost of living at his first news conference.

Warsh also criticized the Fed’s past practices, particularly a policy adopted in 2020 that allowed above-target inflation after periods of low prices. The policy specifically aimed to address employment imbalances.

“This central bank was not the first central bank to want a little more inflation and ended up getting a lot more. That was a mistake,” he said. “The framework failed to achieve its objectives and I’m glad my predecessors took that and scrapped it before I arrived.”

Describing inflation as an “unfair burden”, Warsh reiterated his call for “regime change”, which he first made in an interview with CNBC last year.

“This has been a tax on the American people and businesses. We plan to get rid of this tax,” he said. “This means we need a regime change in policy and we need new practices, some of which work, some of which don’t.”

Similar to his predecessor, Jerome Powell, Warsh stated that persistently high inflation levels are “an undue burden on American households and businesses” that face higher costs overall, with the recent increase largely driven by rising energy prices.

“While monthly price fluctuations are inevitable – especially in an unstable world – the basis for inflation over the long term is largely determined by monetary policy,” he said. “Our committee members have no tolerance for persistently rising inflation. We share a firm determination to restore price stability.”

In broader terms, Warsh said the economy was “growing at a solid pace and showing resilience in the face of recent developments.”

He pointed to business investment, which he called “the most striking feature” of the current climate.

“The rapid pace that seems to be accelerating largely reflects the construction of data centers and the intense demand for the AI-related equipment and software that populate them,” he said.

“We don’t know to what extent the economy will benefit from the development of AI,” he added. “Yet it seems inevitable that what is currently called ‘AI investment’ will soon be called just ‘investment’.”

Warsh has previously said he expects the increase in AI productivity to have a disinflationary effect; This is a proposition opposed by some economists as well as Fed policymakers.

Elsewhere, Warsh detailed the five task forces he created to conduct a comprehensive review of the Fed’s operations. The panels will examine the Fed’s communication, technology, balance sheet, economic data and perspective on inflation.

Together, he said, the groups are part of a “new chapter at the Federal Reserve,” an extension of the “regime change” that Warsh promised in a CNBC interview last year. But while Warsh previously blamed Fed “officials” for institutional problems, he has taken a more conciliatory tone since taking office.

“It has been a privilege to return to the Fed and work again with the many talented and dedicated people I am fortunate to call colleagues,” he said.