On July 14, Federal Reserve Chairman Kevin Warsh gave his first semi-annual monetary policy testimony before the House Financial Services Committee since taking office, coinciding with the release of June CPI data. The figures painted a mixed picture: annual inflation fell from 4.2% in May to 3.5%, largely driven by a decline in energy prices, while monthly prices fell 0.4%, the first monthly decline in six years. Core inflation dropped to 2.6% annually, still above the Fed's 2% target but slowing more slowly than expected.

The key message of Warsh's testimony was that "members of our committee have zero tolerance for persistently high inflation, and we are committed to restoring price stability." He linked this to the decision at the June meeting to keep interest rates unchanged in the 3.50-3.75% range. In his overview of the economy, he noted moderate growth in consumer spending, steady increases in manufacturing output throughout the year, but lagging behind in the housing sector. His most notable observation concerned business investment, highlighting the accelerating growth in demand for data center construction and AI infrastructure.

Unlike his predecessors, Warsh avoided giving any directional signals regarding the interest rate path, a continuation of his strategy to phase out forward guidance. He stated that if he were to project what he would do at the meeting two weeks from now, Fed officials would tend to accept data that aligns with their biases and reject that that doesn't. Other Fed officials have attempted to fill this void; Governor Christopher Waller suggested that new "hot" inflation data could necessitate a rate hike in the near term, while New York Fed President John Williams indicated that the Fed might avoid a rate hike if core inflation remains at a monthly rate of 0.2 percent. With roughly half of the nineteen policymakers forecasting rate hikes by the end of the year, the other half favoring holding steady or cutting rates—meaning the committee is truly divided.

Warsh also emphasized that the five task forces he announced last week aim to prepare the Fed to make better decisions in monetary policy and leave these high-inflation years behind, stating that he will share the findings gradually until the end of the year. He also took a clear stance on political independence, responding to a Democratic congressman's question, "Are you working for Trump?", with "We are an independent central bank."

For those following Fed policy through Gate, the crucial point is that the renewed conflict in the Middle East has driven up energy prices, and this positive inflation data from June risks reversing in the coming months, as Warsh himself hinted. The next FOMC meeting is on July 28-29, and since there is no forward guidance, any new data released before this meeting, especially the impact of oil prices on inflation, will carry much more weight than usual in shaping market interest rate expectations.