Kevin Warsh, chair of the Federal Reserve, avoided giving signals about monetary policy during his testimony before the Senate and dismissed the idea that investment in artificial intelligence automatically generates inflation.
Kevin Warsh, chair of the Federal Reserve, has once again dodged any commitment regarding the direction of interest rates. On his second day of testimony before the Senate Banking Committee, the central banker refused to provide hints about the upcoming monetary policy decision, maintaining the strategy of silence he has adopted since taking office seven weeks ago.
The session was marked by questions from senators about the impact of artificial intelligence on inflation, contacts with President Donald Trump, and the criteria for assessing the persistence of inflationary pressures. Warsh responded without elaborating, stating only that a one-off price increase should not be automatically considered inflationary.
“I do not consider a one-off change in prices to be necessarily inflationary, because I believe there is a supply response,” the Fed chair told lawmakers. Warsh added that while strong investment in AI infrastructure will raise prices in the short term, it will be up to the central bank to determine whether that increase represents a sustained inflationary process.
Investment in AI and its effect on prices
Warsh's statements come in the context of strong demand for technological infrastructure. Major companies like Apple, Microsoft, and Dell have acknowledged that the rising cost of components such as memory and chips, driven by the expansion of data centres, has led them to increase prices on some products.
According to the minutes from the Fed's monetary policy meeting on June 16 and 17, many members of the Federal Open Market Committee believe that the demand for AI infrastructure will keep upward pressure on prices for technology products and electricity. Internal differences persist within the committee regarding the advisability of raising interest rates this year.
For Spanish investors, this situation implies that the costs of electronic components could continue to rise, affecting technology companies and household electricity bills. Uncertainty about the Fed's monetary policy also impacts European markets, where the euro's exchange rate and sovereign debt yields partly depend on the Federal Reserve's decisions.
Warsh downplays recent inflation data
In his testimony, Warsh also downplayed the latest inflation indicators in the United States. While he acknowledged that any central banker welcomes favourable figures, he described the current data as “imperfect measures” of core inflation.
The data released this week showed a slowdown in wholesale inflation in June, a day after the first monthly decline in consumer prices in six years was reported. Year-on-year, inflation moderated to 3.5% in June, down from 4.2% recorded in May.
For the average consumer, this moderation represents a temporary relief, but Warsh warns that it should not be taken as a signal that inflation is under control. Central banks, including the European Central Bank, remain vigilant against potential spikes.
Ethical questions and million-dollar divestment
The session was also marked by attacks from Democratic Senator Elizabeth Warren, who accused Warsh of maintaining a culture of ethical conflicts within the Federal Reserve. Warren criticized the handling of the divestment of over $100 million in assets that Warsh undertook before assuming the presidency of the central bank.
Warsh defended his actions and stated that he followed all established protocols. However, Warren's accusations highlight the need for transparency among senior Fed officials, a topic of concern for financial markets, where confidence in the independence of the central bank is key.
For analysts, this episode underscores the importance of monetary policy officials maintaining impeccable ethical conduct. Any shadow of doubt can generate volatility in bond and currency markets, affecting institutional and retail investors.
The next Fed meeting is scheduled for late July, where the committee is expected to decide on interest rates. Meanwhile, Warsh will remain under the scrutiny of the Senate and the markets, which will be looking for any signs regarding the future of monetary policy.
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