Fed Chair Kevin Warsh Vowed to End 5 Years of High Inflation in First Congressional Testimony

After leading the way for eight years, former Federal Reserve (Fed) chair Jerome Powell passed the torch to Kevin Warsh. July 14's congressional testimony was Warsh's first as the leader of the Fed, and a chance for Americans to see Warsh's plans for the economy.

One of the more memorable statements Warsh made was that inflation was a "choice," arguing that it's the Fed's job to proactively bring it under control and that if it doesn't, the blame should fall on the Fed. That's a slightly different tone from what we're used to seeing from the Fed.

Of course, Warsh's call to end inflation sounds good, but it won't be a walk in the park. If it were that easy, we'd rarely see high inflation numbers.

Fed Chair Kevin Warsh answers questions at a news conference. Photo source: Federal Reserve.

How inflation has evolved over the past five years

After reaching the lowest levels in over a decade, inflation has gone on a roller-coaster ride and now sits above its average over the past decade. At its peak in 2022, inflation had reached its highest levels in four decades. It cooled off quite a bit from 2022 to early 2026, but the fallout from the current war in Iran has driven prices back up.

US Consumer Price Index YoY data by YCharts

A June inflation rate of 3.5% is still higher than preferred (the Fed's target is 2%), but it was 0.4% lower than in May and has put a pause on the calls to increase interest rates. Typically, increasing interest rates is a way to cool down inflation because they make things like borrowing costs and credit card interest more expensive. But with energy prices driving inflation, it's not quite that straightforward.

The elephant in the room, however, is the ongoing war in Iran. June energy prices were down 5.7% from May but up 15.7% year over year. Gasoline and fuel oil prices were up 26.7% and 42.9% year over year, respectively.

If the war continues, there's a good chance energy prices will rise again, pushing inflation back up. Only time will tell how that plays out, but it's something the Fed inevitably has its sights on.

Target Federal Funds Rate Upper Limit data by YCharts

Warsh gives a nod to the tech industry

During the meeting, Warsh said, "The most striking feature of the economy right now is business investment," highlighting data center build-outs and the hardware and software needed to fill and keep them running.

By acknowledging that AI investments are increasing productivity, Warsh is helping to cool "AI bubble" chatter. The current AI boom has been compared to other bubbles, such as the dot-com bubble, but those companies were never close to matching the financial impact of today's AI companies.

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