The Federal Reserve told lawmakers it “will deliver price stability” amid higher inflation in the central bank’s semi-annual Monetary Policy Report to Congress, released Friday.
The semiannual monetary policy report comes as Fed Chairman Kevin Warsh is set to testify before both houses of Congress next Tuesday and Wednesday — first before the House Financial Services Committee and then before the Senate Banking Committee. The Fed chairman is mandated by law to appear before Congress twice a year.
Lawmakers are expected to pepper Warsh with questions about his outlook for the economy, inflation, and interest rates, but they shouldn’t expect the Fed chairman to be forthcoming. While Warsh doubled down last week on the central bank’s commitment to bring down inflation during a panel in Portugal, he refused to offer any insights on the economy or the path for interest rates.
“I said I’m not going to give forward guidance because we’re meeting in six weeks, but I have an update for you, we’re meeting in four weeks,” Warsh said on July 2.
“I want us to have a good family fight … When we get into that room and shut the door, we’re going to have a good debate, but I don’t have much more for you than that.”
In Friday’s report, Fed policymakers noted that inflation remains elevated, reflecting the increase in energy prices due to the conflict in the Middle East as well as tariffs that have pushed up prices of consumer goods and demand for semiconductors and other components used to build data centers. While the prices of services have risen, officials noted that they don’t think it will be lasting.
Since the start of the year, Treasury yields have risen and the market has priced in higher interest rates. The report also notes that one of the numerical policy rules the central bank uses called for a higher fed funds rate than the current range of 3.5% to 3.75%. as inflation has moved higher.
“However, the prescriptions shown here ignore that the economy would have evolved differently if the policy rate had followed one of the paths prescribed by the rules, and, hence, these prescriptions should be interpreted with care,” the report read.
Next Tuesday will also bring a fresh reading on inflation. The Consumer Price Index is expected to have risen 3.8% in June, down from a pace of 4.2% in May, thanks to lower oil prices after President Trump secured what now looks like a moot deal with Iran. Core inflation, which strips out volatile food and energy prices, is expected to tick down a hair to 2.8% from 2.9%. Warsh is likely to be asked about that data but will likely demur.
