Fed Chair Warsh: Inflation Risks Have Declined in Recent Weeks

Federal Reserve Chairman Kevin Warsh said Wednesday that inflation risks have “come down” compared to just a few weeks ago, offering a cautiously optimistic assessment of the US economic outlook as energy prices decline following the end of the US-Iran war. Speaking at the European Central Bank Forum on Central Banking in Sintra, Portugal, Warsh told an audience of the world’s top central bankers that the improving inflation picture could signal a turning point for an economy that has been grappling with the highest price pressures in three years.

A Shift in the Inflation Outlook

Warsh’s remarks, delivered alongside ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem, marked the most significant public assessment of inflation from the new Fed chair since he took office. According to NBC News, Warsh specifically pointed to the sharp decline in energy prices following the signing of a memorandum of understanding between the United States and Iran last month as the primary driver of the improved outlook.

“Energy prices have come down quite substantially” since the US-Iran MOU, Warsh said, though he acknowledged they remain “a bit above where they were pre-conflict.” The conflict, which began in late February 2026 when the US and Israel launched military operations against Iran, sent global energy prices soaring and pushed US inflation to 4.2% in May — its highest level since 2023.

No Forward Guidance on Rates

Despite the more optimistic inflation assessment, Warsh broke sharply with recent Fed tradition by declining to offer any prediction on future interest rate decisions. “I’m not going to give you any prediction as to what we will do,” he stated, signaling a fundamental shift in how the central bank communicates with markets.

This departure from forward guidance represents a hallmark of Warsh’s leadership style. The Fed held interest rates steady at 3.50%-3.75% during his first FOMC meeting in June, though the accompanying dot plot revealed a hawkish lean, with 9 of 19 officials projecting potential rate hikes before year-end, as BBC News reported.

AI and the Economy

Warsh also addressed the growing impact of artificial intelligence on the economy, predicting that the United States would be “a big winner over the medium term.” He dismissed fears that AI would destroy jobs, comparing the current technological shift to the internet revolution.

“Who knew when the internet was born that the internet was going to create a million and a half jobs as Uber drivers?” Warsh said. “We are in the first or second inning of this revolution.”

His comments come as major tech companies including Microsoft, Meta, Alphabet, and Amazon pour billions into AI infrastructure, driving up prices for computer equipment and memory. Consumer electronics makers have responded with price increases — Apple raised prices on MacBooks, iPads, Apple TV, and HomePod on the same day as Warsh’s speech, though it spared iPhones and Apple Watch from increases.

Central Bank Independence Affirmed

When asked whether the Fed would make decisions regardless of President Donald Trump’s preferences — Trump has publicly pushed for rate cuts and previously attacked Warsh’s predecessor, Jerome Powell — Warsh firmly affirmed the central bank’s independence.

“We’ve been an independent central bank for a very long time,” Warsh said. “We’re going to be an independent central bank at this moment, and you’re going to see no changes on that.”

Warsh’s path to the Fed chairmanship was itself contentious. Nominated by Trump in January 2026, his confirmation faced significant hurdles, including a block by Senator Thom Tillis amid a federal investigation into Powell. He was ultimately confirmed in May by the narrowest margin for a Fed chair in US history.

Lagarde Shares the View

ECB President Christine Lagarde, sharing the Sintra stage with Warsh, largely endorsed his assessment. She said that upside risks to inflation and downside risks to economic growth prospects “are probably more broadly balanced” now than “a few weeks ago as a result of what we’re seeing” with energy prices.

The European Central Bank is one of only two major central banks to have raised rates since the Iran conflict began, while the Fed has held steady as it monitors how energy price increases transmit through the broader economy.

What to Watch Next

The Federal Reserve’s rate-setting committee is scheduled to meet July 28-29, and Warsh’s comments have intensified the debate over what comes next. While his tone was notably more dovish than the hawkish dot plot from June suggested, the internal division within the FOMC remains stark. The trajectory of energy prices, the durability of the US-Iran ceasefire, and the inflationary effects of the AI investment boom will all factor into the decision.

For American consumers who have endured months of elevated prices, Warsh’s assessment offers a glimmer of hope — but the Fed chair himself made clear that the work is far from over. “We’ve all looked around and we’ve seen that prices are too high,” he said, “and I don’t think I’m the only one on this stage that’s recommitted to deliver price stability.”