The Wash (House) congressional hearing debut: Even if Trump criticizes, they will act based on data; June CPI cooling doesn’t mean the inflation “mission” is complete

By Li Dan, Wall Street Insights

At the semiannual congressional monetary policy hearing—the first time Fed Chair Wos has appeared since taking charge of the Federal Reserve—Wos said that if she were pressured by U.S. President Trump, she would “do my job,” and that even if Trump criticized her, she would take action based on data. This is the most direct comment Wos has made so far on Trump’s challenges to the Fed.

On Tuesday the 14th, U.S. Eastern Time, at a hearing before the House Financial Services Committee, Wos was asked what she would do if Trump continued to target the Fed—for example, trying to fire Fed governor Cook. Wos said that the U.S. Supreme Court has recently reaffirmed the Fed’s independence in setting monetary policy.

Wos told lawmakers that if she became the target, “I will continue to do my job.” In a series of questions—such as whether she would still be willing to set policy based on data even if Trump pressured her to lower borrowing costs—Wos said: “The Fed’s independence is sacred and inviolable.” She added: “If we remain independent and are seen by the outside world as independent, our credibility will be strengthened… That is the best way for us to do our job.”

Commentary said that Wos’s relationship with Trump may be tested in the coming months. In particular, if high inflation continues and the calls from other Fed officials supporting rate hikes become impossible to ignore, market participants will watch closely. At least for now, Wos appears to have believed what Trump told her when he took office—namely that she should be “fully independent… and not act according to his mood.”

Nick Timiraos, a reporter nicknamed the “new Fed press,” wrote that at the hearing Wos told lawmakers the Fed has “zero tolerance” for high inflation. He said she does not want people to have excessive worries or go too far the other way after a single data release, quoting Wos as saying, “Maybe someone will look at this morning’s (CPI) data and say, ‘All right, the job is done, and everything is perfect.’ I don’t see it that way.”

Timiraos also pointed out that Wos reaffirmed the Fed’s goal of controlling inflation, but did not indicate the direction of interest rates. At the hearing, she did not talk in depth about her views on rates. This is consistent with her long-standing position that the Fed should not reveal its next steps in advance, and she did not clearly define the standard for judging when high inflation evolves into persistent inflation.

Media said that at this hearing, Wos expressed a firm stance on achieving the inflation target and a clear line against Trump’s interference, seeking to firmly establish her authority as the Fed leader. For markets, the Fed’s future shift toward “do more and say less,” the introduction of new inflation indicators, and the “internal big fight” that is about to unfold internally due to balance-sheet reduction and policy tools—all of that implies that the policy path of the past few years will be thoroughly reshaped.

The Fed has tools to achieve price stability, and it will never shirk inflation problems

In her prepared remarks for the monetary policy hearing, Wos emphasized that the Fed has zero tolerance for persistently high inflation. The opening remarks by French Hill, chair of the Financial Services Committee, also showed that lawmakers are focused on inflation. He said Congress expects the Fed to continue focusing on its mission to achieve price stability, and to persist unwaveringly 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, carry out self-reform to maintain the long-term independence of monetary policy, and reshape its reputation as a non-political institution executing Congress’s statutory instructions.”

Hill told Wos that the Fed can control how it handles inflation. He asked how the Fed plans to achieve price stability given the existing policy tools. He said, “The Fed might choose to ‘look through appearances to the underlying nature,’ ignore these inflation pressures, but the Fed has held that view before, and it got it wrong. High inflation affects Americans’ lives right now, not some hypothetical future based on long-term forecasts or inflation expectations.”

In response, Wos acknowledged: “The current situation is complex and changing.” But she reiterated that inflation is a “choice” for policymakers.

Wos said that she had a very critical attitude toward the 2020 version of the Fed framework, which is not a secret. “That Fed framework back then was wrong and was not properly debated. We want the increase in inflation to be more constrained. The Fed has tools to maintain price stability.”

Wos said: “Now is not the time for us to shift responsibility or blame others. The Fed can, and will, achieve price stability. We have the tools you mentioned—whether interest rate policy or balance sheet policy—that will help us achieve this goal. We have the means to achieve it.”

Wos later added that she does not believe there is a brutal either-or choice between stabilizing prices and achieving full employment.

Wos said that as long as the Fed can ensure price stability, the economy can achieve prosperity, and businesses will be able to increase hiring. Therefore, between the Fed’s two major responsibilities assigned by Congress, there is no such thing as a “cruel choice”—it is not a single-choice question where it must be one or the other. She mentioned that on this point, her view differs somewhat from some of her peers in the economics community.

Pledge to break “sticky prices”—when the productivity boom of the 1990s happened, policy couldn’t be applied simply as a template

With broad cooling in U.S. June CPI inflation data released earlier this Tuesday, Wos reiterated that she would not claim the Fed’s inflation “task is already completed.”

Wos refused to indicate whether the hiking cycle had already ended, saying that the decisions of the Federal Open Market Committee (FOMC) “are none of my concern,” and warning markets not to become complacent with a “task completed” mindset just because June CPI recorded its first month-over-month decline in six years.

Wos said: “Although I reviewed the CPI data released this morning, and although it came in better than expected, I do not agree with selectively interpreting the data. I will not stand up and say, ‘the task is done.’ On the contrary, I believe there is still a lot of work to do.”

Wos pledged to break “sticky prices.” She said it is the Fed’s responsibility to ensure that short-term fluctuations in certain specific prices “do not spread.” Unfortunately, what happened over the past few years is exactly the opposite. She pointed out that, based on “economic principles,” once the inflation rate has been above the target level for a period of time, it usually becomes harder to bring it down—this is what people call “sticky prices.”

Wos said: “Those days must become a thing of the past. Our responsibility—also my commitment to you—is to break these sticky prices.”

Media found that at this hearing, Wos had a witty line: “Once you’ve seen a productivity boom, you’ve only seen that one productivity boom.” Minutes after saying that, she added: “Once you’ve seen a financial crisis, you’ve only seen that one financial crisis.”

At bottom, Wos meant: “When I make analogical inferences, I’m very cautious.”

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

U.S. Treasury Secretary Bessent, White House National Economic Council Director Hasset, and even Wos herself have all said that in the mid-1990s, then-Fed Chair Greenspan had the sharp insight to recognize the productivity boom and maintained the Fed’s low interest-rate policy, which they described as wise. This Tuesday, Wos’s remark about the productivity boom suggested that people should not simply apply that example to the current situation.

In her prepared remarks, Wos acknowledged that AI is driving a significant increase in business investment, but she pointed out that it is still unclear to what extent the economy will benefit from AI buildout.

At the hearing, Wos said that in the long run, AI means a substantial improvement in productivity. She said the AI boom “could be the biggest transformation I’ve experienced since I became an adult.” She said the technology not only changes the way innovation happens, but also changes the speed of innovation. Based on her judgment, the AI technology will “enhance” existing jobs, and although it may bring disruptive effects in the short term, “it will also create many other job opportunities.”

Focus on the Fed’s dual mandate of employment and inflation

At the hearing, Republican lawmakers repeatedly emphasized one view: the Fed has involved itself in matters beyond its “dual mandate,” such as diversity and climate change.

Wos, however, stated clearly that the Fed’s responsibilities are well-defined; if she were leading, when setting monetary policy the Fed would focus on its dual mandate.

She said: “The tasks you give us—the Fed—are to achieve maximum employment and price stability, and you have also assigned us many other difficult jobs. We will carry out a series of reforms outside monetary policy. Our work agenda is already packed, and I assure you we will never get involved in other areas.”

Give ample advance warning before balance-sheet adjustments

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

Wos said she does not seek to bring the Fed’s balance sheet back to the 2006 level—that is, back to the level before multiple rounds of QE. But she believes there is a “sustainable equilibrium,” under which the balance-sheet size would be smaller than the current $6.74 trillion. She said this change will not happen overnight; any change will be carefully considered, and from decision to final implementation, it will take “quite a long time.”

She said it is not news that she has reservations about the Fed’s balance-sheet policy. But she is not willing to pre-judge what conclusions the task force on this area will reach, and she said any changes will be fully communicated.

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

Wos said she understands that in times of crisis, it is necessary for the Fed to step in to establish fair prices in the market. But in relatively stable times, if the asset size the Fed holds exceeds the size of the market itself—using the words of former Fed Chair Volcker—that pushes the Fed to the “edge of exercising power.”

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

The five Fed working groups are in the “fact-finding” stage—will discuss reducing the frequency of issuing statements

In her prepared remarks, Wos outlined what the newly established five Fed working groups will be responsible for. At the hearing, Wos said she would be happy, starting immediately through the end of the year, to “regularly” brief members of Congress on the progress of each working group, and she said: “At that time, I hope we can reach some substantive conclusions.”

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

Wos pointed out that the mandates of the working groups will have some “overlap”—for example, there is a functional overlap between the working group responsible for the balance sheet and the working group responsible for communications.

Wos previously said that the working group responsible for communications would evaluate Fed press conferences, economic forecasts, policy statements, and public speeches.

At this Tuesday’s hearing, Wos said she would not commit to establishing a fixed public standard under which press conferences would be automatically held in response to decisions and procedural changes by the Federal Open Market Committee (FOMC). Instead, whether to hold a press conference would depend on the circumstances.

Wos said the Fed will try to go deeper in discussions and reduce the frequency of statements. She noted that the purpose of the evaluation of the communication mechanism and any related adjustments is to ensure the correctness of monetary policy.

Wos said: “I don’t think any adjustment to how we communicate is meant to cover up the truth or conceal information. Adjusting how we communicate is meant to achieve a core objective: ensuring that monetary policy is correct and unambiguous.” In other words, communication reforms are not meant to reduce transparency.

When a lawmaker asked Wos why the Fed should give up the so-called “dot plot” that reflects Fed officials’ interest-rate expectations, Wos said she expects to see the conclusions reached by the working groups she has assembled. She also said she was impressed by her colleagues’ willingness to re-examine the Fed’s strategies with an “open mind.”

Wos also pointed out that, in her view, it is more appropriate to take a “more cautious” approach in external communications.

Don’t interfere with markets casually; using the balance sheet in a crisis is the exception

Wos reiterated that she will not pre-judge the conclusions of the balance-sheet working group. But she said the Fed should be a “price taker,” not a “price maker.” From that perspective, Wos should support not using the 10-year Treasury yield as a target.

Wos said: “We should not interfere with markets casually.” However, she also mentioned an exception—namely, in an emergency: “As for moments of crisis, I don’t want people to think we can stand by and do nothing. Of course, I hope we can stay out of it, but that cannot be guaranteed.”

Wos said she would be willing to use the balance sheet aggressively as a monetary policy tool during a crisis. After the crisis ends, monetary policy “should be driven almost entirely by interest-rate policy.” Interest-rate policy will not favor one group while neglecting another.

The view that interest rates should become the dominant policy tool.

Refuses to comment on Trump and other executive-branch officials

Maxine Waters, the Democratic leader of the Financial Services Committee, said that while Trump is using his position to “seize enormous financial gains,” he is also undermining the independence of federal regulatory agencies. Wos responded that the Fed will “stick to its duties” and stay out of politics. She refused to disclose reports regarding Trump’s personal financial information.

Waters asked whether Trump and other executive-branch officials should be allowed to hold companies within their regulatory scope, including companies involving crypto assets. Wos refused to comment. She said the Fed would focus on its own responsibilities and would not comment on officials outside the Fed.

Waters then shifted to prediction markets, and her remarks appeared to involve insider trading related to government decisions. Wos said that in his first week on the job, he had written to Fed employees to stress the importance of maintaining the Fed’s integrity.