First Hearing in the Wash U.S. Congress: June CPI Cooling Doesn’t Mean the Inflation Task Is Done

Author: Li Dan, Wall Street View

At the first semiannual Congressional monetary policy hearing she attended after taking charge of the Federal Reserve for the first time, Federal Reserve Chair Wash said that if facing pressure from U.S. President Trump, he would “do my job,” and even if Trump criticized him, he would take action based on data.

This is the most direct comment Wash has made so far on Trump’s challenge to the Fed.

On Tuesday the 14th, Eastern Time, when testifying before the House Financial Services Committee, Wash was asked how he would respond if Trump continued to target the Fed—such as trying to fire Fed governor Cook. Wash said the U.S. Supreme Court recently reaffirmed the Fed’s independence in setting monetary policy.

Wash told lawmakers that if he became the target, “I will continue to do my job.” On a series of questions—such as whether, even under pressure from Trump to lower borrowing costs, he would still be willing to formulate policy based on data—Wash said, “The Fed’s independence is sacred and cannot be infringed.” He then added: “If we remain independent and are seen as independent from the outside, our credibility will be enhanced… and that is the best way for us to do our job.”

Commentary said that Wash’s relationship with Trump may be tested in the coming months, especially if high inflation persists and calls from other Fed officials to support rate hikes become impossible to ignore. At least for now, Wash appears to believe what Trump told him when he took office: Trump said he should be “fully independent… not act based on my mood.”

Nick Timiraos, a reporter known as the “new Fed communications agency,” wrote that at the hearing Wash told lawmakers the Fed has “zero tolerance” for high inflation. He does not want people to worry too much or feel overly reassured due to a single set of data releases. Timiraos quoted Wash as saying, “Maybe someone will look at this morning’s (CPI) data and say: ‘Okay, the job is done, everything is perfect.’ I don’t see it that way.”

Timiraos also pointed out that Wash reiterated the Fed’s goal of controlling inflation but gave no hint about the direction of interest rates, and he did not talk much about his views on rates at the hearing. This aligns with his consistent position that the Fed should not reveal its next moves in advance, and he also did not clearly define the standard for when high inflation evolves into persistent inflation.

Media said that at this hearing, Wash showed a firm stance on achieving its inflation goal and a clear line against Trump’s interference, trying to firmly establish his authority as the Fed’s leader.

For markets, the Fed’s future approach—“say less and do more,” introducing new inflation indicators, and an impending “big internal quarrel” as the balance sheet and policy tools come into play—would mean that the policy path of the past few years will be thoroughly reshaped.

The Fed has tools to achieve price stability, and the inflation problem will never be shifted elsewhere

In prepared remarks for the monetary policy hearing, Wash emphasized that the Fed has zero tolerance for persistently high inflation.

The opening statement by French Hill, chair of the Financial Services Committee, also showed that inflation is the focus of lawmakers’ attention. He said Congress expects the Fed to continue focusing on its mission to achieve price stability and to persist unrelentingly until the goal is reached.

Hill not only condemned the sharp surge in inflation, but also criticized the so-called “mission creep” that has emerged at the Fed in recent years.

He said, “The Fed needs to avoid repeating past mistakes, reform itself to maintain long-term independence in monetary policy, and reshape its reputation as a non-political institution responsible for carrying out the statutory instructions of Congress.”

Hill told Wash that the Fed can control how it responds to inflation. He asked how the Fed plans to achieve price stability given the existing policy tools. He said, “The Fed may choose to ‘look through appearances to see the essence,’ ignore these inflation pressures, but the Fed held that view in the past, and it turned out wrong. High inflation affects Americans’ lives right now, not some hypothetical future based on long-term forecasts or inflation expectations.”

In response, Wash acknowledged, “The current situation is complex and changeable.” But he reiterated that inflation is a “choice” made by policymakers.

Wash said he was very critical of the Fed framework version from 2020, and that this was no secret. “Back then, the Fed framework was wrong and was not properly discussed. We want the rise in inflation to be more constrained. The Fed has tools to maintain price stability.”

Wash said, “It’s not the time for us to dodge responsibility or blame others. The Fed can and will achieve price stability. We have the tools you mentioned—whether it’s interest rate policy or balance sheet policy—that will help us achieve this goal. We have the means to do it.”

Wash later also said he does not believe there is a harsh either-or choice between stabilizing prices and achieving full employment.

Wash said that as long as the Fed can ensure price stability, the economy can thrive and businesses will have the ability to add employees. Therefore, between the Fed’s two major responsibilities entrusted by Congress, there is no such thing as a “harsh tradeoff”—this is not a multiple-choice question that is either one or the other. He noted that on this point, his view differs somewhat from some of his peers in the economics community.

Breaking “sticky prices” Commitment—when productivity booms in the 1990s, the policy cannot simply be applied

Regarding the U.S. June CPI inflation data released earlier this Tuesday that generally cooled, Wash reiterated that he would not claim the Fed’s inflation “mission is accomplished.”

Wash refused to comment on whether rate hikes have already ended, saying the decisions of the FOMC “have nothing to do with me,” and warning markets not to become complacent with a “mission accomplished” attitude just because June CPI recorded the first month-over-month decline in six years.

Wash said, “Although I examined the CPI data released this morning, and it was better than expected, I don’t agree with selectively interpreting the data. I’m not going to stand up and say, ‘mission accomplished.’ Instead, I believe there is still a lot of work to do.”

Wash promised to break “sticky prices.” He said the Fed’s job is to ensure that short-term fluctuations in particular prices “do not spread,” but unfortunately what happened over the past few years was the opposite. He pointed out that according to “economic principles,” once the inflation rate stays above the target level for a period of time, bringing it down is usually harder—that is what’s called “sticky prices.”

Wash said, “Those days have to become a thing of the past. Our job—also my commitment to you—is to break these sticky prices.”

The media found that at this hearing, Wash had a clever line: “Once you’ve seen a productivity boom, you’ve only seen that one productivity boom.” A few minutes after saying this, he added, “Once you’ve seen a financial crisis, you’ve only seen that one financial crisis.”

At bottom, Wash’s point was: “I’m very careful when making analogical inferences.”

Regarding Wash’s remarks about productivity booms, the media said they were quite meaningful—especially considering that some people think the current AI investment boom has similarities to the IT investment surge of the 1990s.

U.S. Treasury Secretary Bessent, White House National Economic Council chair Hassett, and even Wash himself have said that in the mid-1990s, then-Fed chair Greenspan敏锐ly noticed the productivity boom and maintained the Fed’s low interest rate policy—this approach was wise. But this Tuesday, Wash’s line about productivity booms suggested that people should not simply apply that example to the current situation.

In his prepared remarks, Wash acknowledged that AI is driving a substantial increase in business investment, but said it is still unclear to what extent the economy will benefit from AI buildout.

At the hearing, Wash said that in the long run, AI means a substantial improvement in productivity. The AI boom “might be the biggest transformation I’ve experienced since I became an adult.” This technology not only changes the way innovation happens, but also changes the speed of innovation. He speculated that this AI technology will “enhance” existing work, and although it could have disruptive effects in the short term, “it will also create many other job opportunities.”

Focusing on the Fed’s dual mission of jobs and inflation

At the hearing, Republican lawmakers repeatedly emphasized a view: that the Fed has gotten involved in matters beyond its “dual mandate,” such as diversification and climate change issues.

Wash clearly said the Fed’s responsibilities are well-defined; if he were in charge, when setting monetary policy, the Fed would focus on its dual mandate.

He said, “The tasks Congress has given us—to achieve maximum employment and stable prices—also assigns many other arduous tasks. We will carry out a series of reforms outside monetary policy. Our agenda is already packed; I assure you we will never get involved in other areas.”

Balance sheet adjustments: full advance notice before reducing

Wash emphasized that the balance sheet is part of monetary policy, saying it is “not just a plumbing system.” Commentary said this viewpoint implies Wash believes the Fed can tolerate higher volatility in short-term funding markets. Of course, the Fed has a standing repo facility to deal with market stress, but many people are reluctant to use it. So Wash might think this backstop can handle any turmoil in repo markets in the future.

Wash said he is not looking to bring the Fed’s balance sheet back to the level of 2006—back to the level before multiple rounds of QE. But he believes there is a “sustainable equilibrium” in which the balance sheet size will be smaller than the current level of $6.74 trillion. Such changes will not happen overnight; any transformation will be thought through carefully, and from decision to final implementation it will take “quite a long time.”

He said it is not news that he has reservations about the Fed’s balance sheet policy. But he does not want to pre-judge what conclusions the working group targeting this area will reach, and said any changes will involve sufficient communication.

Wash said, “Without giving (the Fed’s monetary policy) Committee and the broader financial markets adequate advance notice, there will absolutely be no adjustments to the balance sheet policy.”

Wash said he understands that in a crisis, it is necessary for the Fed to step in to establish fair prices in the market. But in more stable times, if the asset size held by the Fed exceeds the market itself, then—using former Fed chair Volcker’s words—it pushes the Fed to the “edge of the exercise of power.”

Wash added that he believes the Fed should avoid entering the realm of fiscal policy when dealing with balance sheet issues. “We want to stay away from fiscal policy matters,” Wash said.

Five Fed working groups are in a “fact-finding phase,” and will discuss reducing the frequency of statements

In prepared remarks, Wash introduced what the newly established five Fed working groups would do. At the hearing, Wash said he is happy to “regularly” brief members of Congress on the progress of each working group from now until the end of the year, and said, “By then, I hope we will reach some substantive conclusions.”

Wash said the five working groups are in a “fact-finding phase,” and the related groups will “first share their views with decision-makers.” He promised that the operation of these working groups will never be “secret.”

Wash noted that the scope of functions among the working groups will overlap—for example, there will be cross-functional overlaps between the working group responsible for the balance sheet and the one responsible for communications.

Earlier, Wash said that the working group responsible for communications would assess the Fed’s press conferences, economic projections, policy statements, and public speeches.

At Tuesday’s hearing, Wash said he would not commit to establishing a fixed public standard that automatically triggers press conferences for every decision and procedural change of the FOMC. Instead, whether to hold a press conference would depend on the specific circumstances.

Wash said the Fed will try to go deeper and reduce the frequency of issuing statements. He pointed out that the evaluation of this communication mechanism and any related adjustments aim to ensure the correctness of monetary policy.

Wash said, “I don’t think any adjustment to the way we communicate is intended to conceal the truth or hide information. Adjusting how we communicate is meant to achieve a core goal: to ensure monetary policy is correct and beyond reproach.” In other words, communication reforms are not meant to reduce transparency.

A lawmaker asked Wash why the Fed should abandon the so-called “dot plot” that reflects Fed officials’ rate expectations. Wash said he expects to see the conclusions from the working groups he assembled, and he was impressed by his Fed colleagues’ willingness to re-examine the Fed’s strategies with an “open mind.”

Wash also pointed out that, in his view, taking a “more cautious” approach when communicating externally is the right thing to do.

Do not interfere with markets at will—using the balance sheet in a crisis is an exception

Wash reiterated that he will not pre-judge the conclusions of the balance sheet working group. But he said the Fed should be a “price taker” rather than a “price maker.” From that perspective, Wash should support not targeting the 10-year Treasury yield.

Wash said, “We should not interfere in markets at will.” However, he also mentioned one exception—during emergencies: “As for crisis moments, I don’t want people to think that we can stand by and do nothing. Of course, I would like to be in the background, but that cannot be guaranteed.”

Wash said he is willing to aggressively use the balance sheet as a monetary policy tool in a crisis. But once the crisis ends, monetary policy “should be driven almost entirely by interest rate policy.” Interest rate policy will not favor one class while neglecting another. He believes interest rates should become the dominant policy tool.

Refusing to disclose Trump’s personal finances and other administrative officials

Maxine Waters, the Democratic leader of the Financial Services Committee, said Trump is weakening the independence of federal regulatory agencies while using his position to “seize huge profits.” Wash responded that the Fed will “stick to its duties” and not get involved in politics. He refused to act on the disclosure request regarding Trump’s personal financial information reports.

Waters asked whether Trump and other administration officials should be allowed to hold companies within their regulatory scope—including companies involving crypto-asset holdings. Wash refused to comment on this. He said the Fed will focus on its own responsibilities and will not comment on officials outside the Fed.

Waters then turned to prediction markets, and her remarks seemed to involve insider trading related to government decisions. Wash said he sent a letter to Fed employees in his first week on the job, emphasizing the importance of maintaining the Fed’s integrity.