Federal Reserve Holds Interest Rates Steady
Washington–The Federal Reserve kept interest rates unchanged as Chairman Kevin Warsh told Congress that the central bank remained committed to bringing inflation under control and would conduct a broad review of its monetary policy practices.
Making his first appearance before Congress as Fed chairman, Warsh said the Federal Open Market Committee maintained the federal funds rate in a range of 3.5% to 3.75% at its June meeting.
“The members of our committee have no tolerance for persistently elevated inflation,” Warsh told the House Financial Services Committee. “And we share a resolute commitment to ensure price stability.”
Warsh said the U.S. economy continued to expand at a solid pace despite recent global developments. Household spending had moderated, manufacturing output had risen steadily and the labor market remained resilient, although the housing sector continued to lag.
“We’re committed to the 2 per cent inflation goal,” Warsh said. “This isn’t a time for us to pass the buck, to blame others.”
The Fed chairman acknowledged that overseas conflicts and other external developments were beyond the central bank’s control. However, he said the Fed could achieve stable prices through interest-rate policy and management of its balance sheet.
“We have the tools to deliver that,” he said. “So it’s a function of commitment, responsibility and tools. And we’re three for three and we’ll deliver.”
Warsh described business investment as one of the strongest features of the economy. He said investment in equipment increased about 8% in the first quarter, while spending on high-technology equipment rose nearly 25%.
The growth partly reflected data center construction and strong demand for artificial intelligence-related equipment and software.
“At the fed, we don’t yet know fully the extent to which the economy will benefit from AI,” Warsh said. “Yet it seems inevitable that that which we’re now calling AI investment will soon just be called investment.”
Warsh said the central bank was monitoring the potential effects of AI on employment and inflation. Productivity growth remained strong, the labor force appeared stable and job creation had kept pace with workforce growth, he added.
He also announced reviews of Fed communications, balance-sheet policy, the use of existing data, productivity and employment, and inflation frameworks. Task forces examining those areas are expected to release their findings by the end of the year.
The hearing also highlighted partisan divisions over the central bank. Republican committee Chairman French Hill urged the Fed to remain focused on price stability, while ranking Democrat Maxine Waters pressed Warsh to defend the institution’s independence from President Donald Trump.
“We’re an independent central bank, we’re honoured to be independent,” Warsh said. Asked how he would respond to political pressure, he added: “I would continue to do my job.”
Federal Reserve interest-rate decisions affect borrowing costs, the value of the dollar and international investment flows. Governments, central banks and financial markets around the world closely monitor changes in U.S. monetary policy. (Source: IANS)
