Kevin Warsh used his first congressional testimony as Federal Reserve Chairman to stress that the Committee has no tolerance for persistently elevated inflation. June’s Consumer Price Index increased 3.5% year over year, and CME Group’s FedWatch tool shows a 90% probability that the fed funds rate will be higher at the end of this year. Equity markets appear to be shrugging the stance off.
The Federal Reserve is signaling that interest rates won’t fall anytime soon. Kevin Warsh, two months into the job as Fed Chairman, testified before Congress for the first time as part of a semiannual process, and what stood out was the attention he gave to prices across the economy.
Warsh puts prices ahead of political pressure
Warsh reiterated the Fed’s focus on maintaining independence from any political influence, though the White House might continue to apply pressure. On prices, Warsh told lawmakers that the Committee has “no tolerance for persistently elevated inflation” and that its members share a commitment to restoring price stability.
Prices remain meaningfully higher than the central bank’s 2% target. The Consumer Price Index increased 3.5% year over year in June, and shelter and food are areas where households continue to see prices rise.
Markets price a higher fed funds rate
There was speculation that President Trump nominated Warsh with the understanding that the new Fed chair would lower interest rates sooner rather than later. That does not seem likely — CME Group’s FedWatch tool shows a 90% probability that the fed funds rate will be higher at the end of this year.
Yet the market appears to be shrugging off this hawkish monetary policy. The S&P 500 has climbed 10% in 2026 as of July 22.
What could still pull prices down
Conflict in the Middle East adds an element of uncertainty and can keep impacting energy prices. Other factors can contribute to declining inflation: advances in artificial intelligence can drive unprecedented productivity gains that lower prices. Were that to happen, the central bank would be more comfortable lowering the fed funds rate.
Source: The Motley Fool
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