# Fed Chair Warsh Pledges Inflation Will Be 'Thing of the Past,' Calls AI Spending Economy's Most Striking Feature > Source: > Published: 2026-07-14 16:48:23.632066+00:00 # Fed Chair Warsh Pledges Inflation Will Be 'Thing of the Past,' Calls AI Spending Economy's Most Striking Feature - Warsh told Congress the Fed has 'no tolerance for persistently elevated inflation' and promised that the inflation surge of the past five years will be 'a thing of the past' [[1]](https://www.cnbc.com/2026/07/14/warsh-promises-inflation-will-be-a-thing-of-the-past-cites-benefits-of-ai-investment-boom.html) - He identified AI-driven business investment as 'the most striking feature' of the economy, with high-tech equipment spending growing at nearly 25% on a four-quarter basis [[2]](https://www.federalreserve.gov/newsevents/testimony/warsh20260714a.htm) - June CPI fell 0.4% month-over-month — the largest decline since April 2020 — with headline inflation dropping to 3.5% from 4.2% and core CPI easing to 2.6% [[3]](https://www.coindesk.com/markets/2026/07/14/u-s-june-cpi-fell-0-4-likely-cooling-move-toward-fed-rate-hikes) - Warsh announced five internal task forces to review Fed communications, balance sheet policy, data methodology, productivity, and the inflation framework [[2]](https://www.federalreserve.gov/newsevents/testimony/warsh20260714a.htm) - The Fed held the federal funds rate at 3.5%-3.75% at its June meeting, with the committee roughly split on whether further hikes are needed this year [[4]](https://www.pbs.org/newshour/politics/watch-live-fed-chair-kevin-warsh-testifies-on-monetary-policy-in-house-hearing) Federal Reserve Chair Kevin Warsh pledged Tuesday to defeat inflation in his first appearance before Congress, telling the House Financial Services Committee that the price surge of the past five years will be 'a thing of the past' if the central bank executes its mandate. 'The members of our Committee have no tolerance for persistently elevated inflation,' Warsh said in prepared remarks. 'And we share a resolute commitment to restoring price stability.' [[1]](https://www.cnbc.com/2026/07/14/warsh-promises-inflation-will-be-a-thing-of-the-past-cites-benefits-of-ai-investment-boom.html) The testimony came on the same morning the Bureau of Labor Statistics reported that the Consumer Price Index declined 0.4% in June — the largest monthly drop since April 2020 — as energy prices fell sharply following a ceasefire between the U.S. and Iran. Headline inflation fell to 3.5% year-over-year from 4.2% in May, while core CPI eased to 2.6%, both below Wall Street forecasts [3]. Warsh singled out artificial intelligence infrastructure spending as 'the most striking feature' of the current economy, noting that equipment investment rose roughly 8% year-over-year in the first quarter while high-tech spending grew at nearly 25% on a four-quarter basis. 'What is now called AI investment will soon be called just investment,' Warsh said [2]. Despite the cooler inflation print, Warsh declined to signal whether additional rate increases are on the table. The Fed held the federal funds rate at 3.5% to 3.75% at its June meeting, and the 19-member rate-setting committee remains roughly evenly split on whether hikes are needed before year-end [4]. ## What Warsh Said Warsh used his debut testimony to distance himself from the monetary policy frameworks of his predecessors. He criticized the flexible average inflation targeting regime adopted in 2020, which allowed above-target inflation after periods of lower prices, calling high inflation 'an undue burden on American households and businesses' [2]. The chairman announced five internal task forces to review how the Fed operates, covering communications, balance sheet policy, economic data methodology, productivity and employment, and the inflation framework itself. The move signals an institutional overhaul that goes beyond rate-setting to the central bank's analytical foundations [2]. Warsh also broke with recent Fed tradition by refusing to offer forward guidance on interest rate plans. He provided no indication of the Fed's reaction function, leaving markets to interpret his commitment to price stability without a roadmap for how rates will get there [5]. ## The CPI Backdrop The timing of Warsh's testimony alongside the June CPI release created an unusual confluence. Headline CPI fell 0.4% month-over-month versus economist forecasts of a 0.1% decline, driven largely by a 9.7% drop in gasoline prices after energy costs had surged as much as 23.5% year-over-year in May [3]. Core inflation — excluding food and energy — was flat on a monthly basis versus forecasts of a 0.2% increase, bringing the annual core rate to 2.6% from 2.9% in May. The print significantly cooled expectations for a July rate hike; market-implied probabilities had surged to 42% from 8% a month earlier before the data landed [3]. The disinflationary surprise gave Warsh breathing room in his testimony, though analysts noted that the energy-driven decline may prove temporary. Gas prices remain roughly 35% above pre-February levels, when the U.S.-Iran conflict first disrupted oil markets [4]. ## The AI Investment Angle Warsh's framing of AI infrastructure spending as a defining economic force carried a dual message. On one hand, the rapid buildout of data centers and surging orders for AI-related equipment and software are driving capital expenditure growth and supporting employment. On the other, the demand has pushed semiconductor prices higher, raising costs for consumer electronics including laptops, tablets, and gaming consoles [4]. The chairman said the Fed is 'keeping close watch' on what the investment wave means for both prices and employment — an acknowledgment that the AI boom is both a supply-side tailwind and a potential inflationary pressure [2]. Equipment investment running at 8% growth with high-tech spending at nearly 25% represents the most concentrated capital expenditure cycle since the late-1990s internet buildout. The Fed's newly created productivity task force will specifically study the macroeconomic implications of this wave [2]. ## Market Reaction Markets responded positively to the combination of cooler inflation data and Warsh's hawkish-but-patient tone. The Nasdaq 100 rose approximately 1%, with QQQ trading at $718.72, up about 0.98% on the day. The S&P 500 edged higher, with SPY at $750.58, up 0.19% [6]. Treasury yields declined modestly. The 2-year yield fell seven basis points to 4.19%, while the 10-year dropped five basis points to 4.56%, reflecting reduced expectations for near-term rate action [3]. Fed Governor Christopher Waller's hawkish comments earlier in the week had pushed rate-hike odds higher, but the CPI print and Warsh's refusal to endorse further tightening appeared to neutralize that positioning [5]. ## What's Next Warsh is scheduled to testify before the Senate Banking Committee on Wednesday, where he is expected to face questions on the Fed's independence amid political pressure from the White House. U.S. News reported that Warsh has taken 'tentative steps away from Trump' since assuming the chairmanship [7]. The next Fed policy meeting is later this month. With June CPI easing pressure for immediate action and the committee evenly divided, markets are now pricing a hold as the base case. But Warsh's deliberate opacity on forward guidance means the July decision remains genuinely uncertain [5]. The five task forces Warsh announced will report back over the coming months, potentially reshaping how the Fed communicates, manages its balance sheet, and measures economic activity. The scope of the review suggests Warsh intends to put a personal stamp on the institution that extends well beyond the current rate cycle [2]. ## Further sources [[1] CNBC: Warsh pledges Fed policy 'regime change' to rid inflation 'tax' on Americ… ↗](https://www.cnbc.com/2026/07/14/warsh-promises-inflation-will-be-a-thing-of-the-past-cites-benefits-of-ai-investment-boom.html) [[2] Federal Reserve: Testimony by Chairman Warsh on the semiannual Monetary Policy … ↗](https://www.federalreserve.gov/newsevents/testimony/warsh20260714a.htm) [[3] CoinDesk: U.S. June CPI fell 0.4%, likely cooling move toward Fed rate hikes ↗](https://www.coindesk.com/markets/2026/07/14/u-s-june-cpi-fell-0-4-likely-cooling-move-toward-fed-rate-hikes) [[4] PBS NewsHour: Fed chair Kevin Warsh testifies on monetary policy in House heari… ↗](https://www.pbs.org/newshour/politics/watch-live-fed-chair-kevin-warsh-testifies-on-monetary-policy-in-house-hearing) [[5] Axios: Fed's Warsh stays mum on rate plans, pledges price stability ↗](https://www.axios.com/2026/07/14/fed-warsh-congress-rates) [[6] FMP market data: SPY, QQQ, TLT real-time quotes, July 14, 2026 ↗](https://financialmodelingprep.com)+1 more The stories that matter, in one email. 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