Federal Reserve Chairman Kevin Warsh delivered one of his clearest policy messages since taking office, telling Congress Tuesday that the central bank has “no tolerance for persistently elevated inflation” while refusing to signal whether interest rates could change at the Fed’s upcoming meeting later this month.

His remarks came just hours after fresh inflation data showed consumer prices unexpectedly declined in June, easing concerns that price pressures were accelerating again.

Although the latest report could reduce pressure for another rate increase, Warsh made clear the Federal Reserve remains singularly focused on restoring price stability after several years of elevated inflation.

Warsh Doubles Down on Inflation Fight

Appearing before the House Financial Services Committee, Warsh emphasized that bringing inflation under control remains the Fed’s highest priority.

“If we get policy right—and we will—the inflation surge of the last five years will be a thing of the past,” Warsh said.

Notably absent from his testimony was any guidance about where interest rates are headed.

Warsh has repeatedly argued that Federal Reserve officials should avoid signaling policy decisions before meetings, preferring markets respond to economic data rather than central bank forecasts.

That leaves investors closely watching the Fed’s July 28-29 meeting, where officials will evaluate whether current policy remains restrictive enough.

Cooler Inflation Report Changes the Conversation

Warsh’s testimony coincided with a surprisingly encouraging inflation report from the Labor Department.

Consumer prices declined during June, while core inflation, which excludes food and energy prices, showed no monthly increase.

The softer report could ease fears that inflation was becoming entrenched after several months of stubborn readings.

Earlier this week, some policymakers had suggested another interest-rate increase should remain under consideration if inflation failed to improve.

Tuesday’s data may now lessen that urgency.

Why Some Fed Officials Still See Inflation Risks

Despite the encouraging inflation report, several Federal Reserve officials remain cautious.

Inflation has remained above the Fed’s long-term 2% target, generally hovering between 3% and 4% over recent months.

Officials continue to monitor several factors that could keep prices elevated, including:

Higher tariffs on imported goods
Energy and commodity disruptions linked to the Iran conflict
Massive investment tied to artificial intelligence infrastructure

Fed Governor Christopher Waller said Monday that while inflation could continue improving, policymakers should not rule out another rate increase if price pressures remain persistent.

AI Investment Is Becoming a Major Fed Focus

One of the most notable portions of Warsh’s testimony centered on artificial intelligence.

He highlighted accelerating business investment in AI infrastructure as one of the most important developments shaping the U.S. economy.

According to Warsh, rapid productivity gains from AI could help the economy expand faster without generating the same inflation pressures seen during previous economic booms.

At the same time, he acknowledged that AI creates new challenges for policymakers trying to balance economic growth with stable prices.

“The Fed is monitoring the implications for inflation and the labor market,” he said.

Labor Market Remains a Source of Strength

Warsh described the U.S. labor market as broadly healthy despite elevated interest rates.

He pointed to:

Low levels of layoffs
Continued wage growth
Stable hiring
Strong productivity improvements

Last year, the Federal Reserve cut interest rates three times amid fears the labor market was weakening.

Those concerns largely failed to materialize as unemployment remained relatively stable and hiring held up better than expected.

Instead, policymakers have found themselves confronting a more resilient economy alongside inflation that has been slower to return to target.

Warsh’s Leadership Marks a New Chapter for the Fed

Warsh assumed leadership of the Federal Reserve in May following years of heightened political scrutiny surrounding the central bank.

President Donald Trump had frequently criticized former Chair Jerome Powell and publicly pushed for lower interest rates during Powell’s tenure.

Warsh has taken a different approach, emphasizing that the Fed earns its independence by successfully achieving its inflation mandate rather than through statutory protections alone.

His testimony reinforces the message that restoring confidence in price stability remains central to that mission.

What Investors Should Watch Next

Attention now turns to the Federal Reserve’s July 28-29 policy meeting.

While Tuesday’s softer inflation report may reduce expectations for another rate hike, Warsh offered no indication of how the committee may ultimately vote.

Markets will closely monitor upcoming inflation, employment, and consumer spending data over the next two weeks for additional clues about whether policymakers believe inflation is truly moving back toward target or whether additional tightening could still be necessary.