Fed's Warsh faces tough interest-rate, inflation scrutiny from Congress

Inflation. Oil. Tariffs.

And, of course, interest rates.

Those are the questions that both chambers of Congress will be throwing at Kevin Warsh during his first live appearances on Capitol Hill as Federal Reserve Chairman July 14-15.

Neither the House nor the Senate committees may be content to hear answers touting artificial intelligence as the key to keeping all of the above at optimum levels, especially given the current economic angst squeezing consumers and businesses during the midterm election year.

They'll be armed with the latest Consumer Price Index figures, which will be released July 14, plus the findings of the Fed's July 10 Monetary Policy Report, which said the outlook of the future path of interest rates "is subject to considerable uncertainty."

Warsh has pledged in his first seven weeks on the job that the central bank will work toward price stability, and told a group of global central bankers on June 30 that inflation was beginning to come down.

Moody's Analytics Deputy Chief Economist Cristian deRitis said with consensus puts headline CPI near 3.8% from a year ago, down from 4.2% in May. Nearly all of the improvement comes from a roughly 10% drop in retail gasoline prices as Persian Gulf supply fears eased in June.

The real focus on CPI will be on core inflation, including price changes for tariff-sensitive goods, he added.

"We'll also want to pay attention to sticky service price inflation which should be less impacted by tariffs and energy prices. Without a deceleration here, it will be difficult to get overall inflation down,'' deRitis said in a LinkedIn post.

A soft core CPI number will buy the Fed some breathing room around interest rates, he added.

"A firm one, with more tariff pass-throughs in the pipeline and oil at risk of spiking again, will harden the case for tightening,'' deRitis said.

Fed's dual mandate is a tricky dance

The Fed's dual mandate from Congress requires maximum employment and stable prices.

• Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral.
• Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity.

Interest rates steady thus far this year

The rate-setting Federal Open Market Committee voted unanimously last month to hold its benchmark Federal Funds Rate target in a range of 3.5% to 3.75%.

But the minutes of the June FOMC meeting showed policymakers split on inflation risk and the impact on interest rates.

Investors are now pricing in at least one quarter-point rate rise by year-end, in part due to underlying inflation risks.

Fed cut rates in 2025 due to labor risk

To shore up the softening labor market, policymakers had cut rates by a quarter point at each of their last three meetings of 2025.

These "insurance" cuts stopped after the majority of policymakers decided the risk from higher prices was outweighing signs that the jobs market was stabilizing.

Related: Warsh recruits all-star team, AI experts to kickstart Fed reform

The funds rate is the interest rate at which banks lend balances at the Federal Reserve to other banks overnight.

A change in the funds rate triggers moves in borrowing costs ranging from credit cards to auto loans and, indirectly, mortgage terms.

What's ahead for interest rates?

Following the July 7 release of the June FOMC meetings, the CME Group FedWatch Tool estimated there will be at least one quarter-point rate hike this year with more potentially to come in 2027.

New York Fed President John Williams said July 7 that monetary policy was well-positioned. He expected headline PCE, the Fed's preferred inflation gauge that's been hitting close to 4%, to dip over the next several months as energy prices stabilize.

J.P. Morgan Wealth Management Global Investment Strategist Vinny Amaru told TheStreet in an email following the June jobs report on July 2 that overall, the U.S. economy remains resilient.

"Slightly weaker payroll gains and mild wage growth reinforce our view that the Fed will remain on hold this year as neither signal the need to hike interest rates to cool an overheating labor market,'' Amaru said.

The next FOMC meeting is July 28-29.

Related: Bernstein revamps gold price target on Fed-rate shift

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This story was originally published July 13, 2026 at 1:12 PM.