Today, the committee welcomes Chairman Kevin Warsh for his first semiannual monetary policy hearing since taking office. I know it's been seven weeks, but it probably feels like a couple of years. We are really happy to have you with us and really excited about the direction of the Fed. Today is about how the Fed is serving the American people and how Chairman Warsh is working to combat years of mission creep at the Fed and restoring the Fed's credibility, especially to the general public. The decisions that the Fed makes affect everyday life in South Carolina and around our country. For example, those decisions affect the mortgage payment a couple is trying to afford, the credit card bill a single mom is trying to pay down, and the decisions a small business owner makes about whether they can afford a loan or not. Frankly, the Fed even has impact on the interest rate environment. As you know, ranking member and I spent over a year working on a housing bill that will actually help us increase housing supply, help us expedite the process of building a house through NEPA reform. It'll create more diversity in housing selection at the end, the removal of the chassis requirement. These are important issues that will make housing affordability incredibly easier, but it will never get to the main point of interest rates. The interest rate is something that you control that we don't control. We want you to follow the facts, however, because that is really important for the long-term durability of our economy.
But in North Charleston, where I grew up, families do not talk about monetary policy, Kevin. They just don't talk at those terms. But they fully understand the principle that when prices rise faster than paychecks, it's really hard to make their ends meet. That is why affordability must be at the center of our conversation. The Federal Reserve has a mandate to pursue and promote a strong labor market through maximum employment and stable prices. Those are serious responsibilities and I'm glad that you are the man for the job and you've taken it seriously. They require clear thinking, steady leadership, and the commitment to follow the data no matter the political ramifications. It also requires understanding the forces shaping our economy, including AI's impact on jobs, wages, productivity, and prices. Independence is not a slogan. It is a responsibility. And the best way for the Fed to protect its independence is to stay focused on its mission. For too many years, the Federal Reserve drifted into issues outside of its core responsibilities and America paid a price for it. Mission creep makes the Fed less accountable and undermines public trust. I am encouraged by the steps that you are taking to reform our central bank. But that starts with a more disciplined approach to how the Fed communicates. Moving away from overly detailed predictions about where interest rates might be going in the next several months is a helpful step to make sure the Fed is able to adapt when conditions change. Families, small businesses, and markets are better served when the Fed follows the data in front of them, not a forecast that may change in an instant. Less guessing and more discipline will help the Fed stay flexible, credible, and focused.
The five independent task forces that you set up also sends a very important signal that the Fed is willing to start from its core principles and pursue thoughtful reforms to deliver on its statutory mandate. You and I had a quick conversation before walking in here and I wanted to note that I think that the working groups are fantastic. Frankly, I think the composition of the working groups is really important. One of the things that we talked about was a balance sheet working group. I must concede that I'm a fan of Abraham Lincoln's approach of these team of rivals and it seems like you have Jeremy Stein and you might know Jeremy from Harvard as well as the former governor of the Indian central bank, Mr. Rajan. They have very nicely put competing approaches and philosophies about the balance sheet. But if you're going to be intellectually honest, you need to have a serious debate about what direction to go and frankly how to get there. And so I'm really excited about what you're doing there and I look forward to hearing how that works out for you, for the Federal Reserve, and more importantly for the American people because unwinding a balance sheet the size that we have today is going to take a deliberate effort that will have to be paced properly not to create instability and volatility in our market. So thank you for taking on that seriously.
As AI reshapes the economy, the Fed should understand its impact on jobs, productivity, and prices and the financial system without using technological change to expand its mandate. That same discipline should guide the Fed's approach to bank regulation. The US banking system is sound and resilient, but we cannot take that for granted. Preserving that strength requires regulation and supervision that are clear, appropriately tailored, and focused on real risks. According to the July 2026 monetary policy report, bank capital is near historically high levels. As the Fed finalizes Basel 3 endgame and other capital rules, it should pursue better calibrated requirements that preserve resilience without unnecessarily restricting lending. When capital is stuck on the sidelines, a family in Irmal, South Carolina may find it very difficult to get a mortgage. A small business may find it hard to get a loan. A community bank may spend more time satisfying Washington than serving its own customers. That is why this committee will continue pressing for regulations that protect the system without cutting off access to credit. I want the Fed to be very successful. We need the Fed to be successful. Prices become more stable when your job is done well. Markets gain confidence, wages grow, and more families have the opportunity to save, invest, buy a home, and live their version of the American dream. Welcome today, ranking member. The floor is yours.
Thank you, Mr. Chairman, and welcome back, Mr. Warsh. So about two months ago, you appeared in front of this committee for your nomination hearing and you refused to answer basic factual questions. I assume because you were afraid of contradicting President Trump. Your answers during the hearing were so troubling that this committee had a party-line vote for Fed chair for the first time ever in our history. You were confirmed by the Senate in the tightest vote for a Fed chair in US history. So, you now face an uphill battle to show that you have the independence needed to run America's central bank and to serve American families and not just President Trump and his billionaire friends. Now, President Trump's corruption and failed economic agenda is raising costs across the board. Inflation has kept real wages from growing for the third consecutive month. That means in the Trump economy, families are falling behind with less to spend every day that goes by. High interest rates are making mortgages, auto loans, and credit cards more expensive. More and more people are falling behind on their bills. 95% of Americans believe that the US is suffering an affordability crisis. While President Trump continues to call affordability a hoax, telling Americans their concerns about the cost of living are made up. Lower interest rates would provide some relief to families, but the Fed hasn't lowered interest rates and may be forced to raise rates even more. All because of one man, President Trump.
Now, the president knows this. So, instead of changing course, he wants to take over the Fed. Installing you as Fed chair was a critical part of his plan. You reportedly told the president exactly what he wanted to hear in your Oval Office interview, and Trump confirmed it afterwards, saying, quote, 'Warsh thinks you have to lower interest rates.' Now, for your part, you were the only member of the last Fed meeting who declined to submit economic projections. Projections that are supposed to show how the Fed's decisions under your leadership are likely to affect American consumers and American workers. People might look at that and conclude that you don't want to tell the truth about inflation under Trump. Trump may have you in his pocket, but he will not stop until he controls the Fed. And he just needs one more seat to do that. And that's why he has had his Department of Justice open bogus criminal investigations into both Governor Lisa Cook and former Chair Jerome Powell. And that is why he illegally tried to fire Fed Governor Cook. His own Supreme Court recently blocked the firing, at least for now. But Trump has vowed to try again to fire Governor Cook.
The fight for control is a fight over interest rates, but it is also about corruption. President Trump likes to play king, and the Fed offers many appealing opportunities for the president to enrich himself while he fleeces the American people. Start with crypto. Trump's family crypto company is World Liberty Financial, the centerpiece of the crypto enterprise that let him rake in $1.4 billion in 2025 alone. Now, it is currently applying for a bank charter. After that charter is granted by Trump's own bank regulator, World Liberty could seek special privileges from the Federal Reserve to juice its own profits, like a master account that would give Trump's own company direct access to the Fed's core payment rails. And there's more. If he can control the Fed, Trump could threaten to revoke banks' access to Fed's services if they refuse to do his bidding. He could hijack the Fed's extraordinary powers to bail out financial markets, making sure that he rewards his friends and punishes his enemies in a crisis. And you better bet that Trump will turbocharge the Wall Street deregulation that is already underway, juicing mega bank profits and CEO bonuses, knowing that American taxpayers will be on the hook once again if there's another devastating financial crash. Congress and the American people will be watching closely whether you serve the public or whether you become yet another instrument of Donald Trump's corruption. Thank you, Mr. Chairman.
Thank you, ma'am. Chairman Warsh, thank you for being with us. The floor is yours. Five minutes.
Thank you very much, Mr. Chairman, Ranking Member Warren, other members of the committee. Good morning. It's a privilege to join you. It's my first appearance before this panel as chairman and I'm particularly honored to represent my superb colleagues from across the Federal Reserve system. In submitting the monetary policy report, I can't help but think of a long line of central bank chiefs who came before the Congress in keeping with the Federal Reserve Act. And I can't help but think of the best of the Fed's traditions. As a country, we just marked our 250th year. And when Americans count our blessings, we can include an economy predicated on the brilliance of our constitutional design and system of ordered liberty. An economy without equal in all it's done for human flourishing. Some forms of communication, including some that the ranking member referenced, are discretionary, but not this one. And for good reason. It's a prudent and wisely conceived obligation designed to keep the Fed responsible, accountable, and faithful to the mandate that you gave us of full employment and price stability. These obligations are of a piece with the Fed's rightful independence in the conduct of monetary policy. Today, we're at a hinge point in history, and it's up to each of us, myself included, to meet this moment. The Fed's number one objective is to get monetary policy right. That's our clear and constant aim, the star by which we steer by. And if we get policy right, and we will, the inflation surge of the last five years will be a thing of the past.
Just a month ago, I chaired my very first FOMC meeting. My colleagues and I recognize that high inflation has been an undue burden on American households and businesses. And while monthly fluctuations are inevitable, especially in an unsettled world, underlying inflation over longer-term horizons is determined largely by monetary policy. As I've said before and will say today, inflation is a choice. The members of our committee have no tolerance for persistently elevated inflation and we share a resolute commitment to restore price stability. That was our focus when we met a month ago at which we decided to hold the target range in the federal funds rate at 3 and 1 half to 3 and 3/4%. Naturally, our work at the Fed demands a proper reading of economic conditions. As you might have seen in our report, economic activity is expanding at a solid pace, showing resilience in the face of recent developments. Household consumption growth is moderate and manufacturing output has moved up steadily this year. The housing sector, however, strikes a different note. It gives a different picture and continues to lag. I want to highlight the most striking feature of our economy right now and it's business investment. It is a surge in capital expenditures. Compare that to what we've seen for a long, long period of financial engineering. This is a better situation.
The rapid pace of capex, which appears to be accelerating, reflects in large part the construction of infrastructure including in and around AI and the immense demand for AI-related equipment and software. Investment in equipment overall increased about 8% for the year in the first quarter. Within that category, high-tech spending logged an especially impressive growth rate of about 25%. We don't yet know the extent to which the economy will benefit from this buildout. Yet, it seems inevitable, at least to me, that what is now called AI investment will soon just be called investment. Even so, new opportunities for the economy introduce new challenges for policymakers. We at the Fed are monitoring the implications for the inflation and for the labor market. That brings me to the supply side of the economy, a subject worthy of equal attention where productivity growth has been strong. And I'll note that this productivity growth predates gains from AI adoption. America's labor force appears to be broadly stable. Job creation has kept pace with the workforce. The unemployment rate is low and has changed little quite frankly over the last year. We're seeing relatively few layoffs and only slight variance in the rate of job vacancies. Solid growth in nominal wages, too.
I've been heartened by the welcome I've received and by the encouragement of my colleagues. We have a duty to point the institution forward, to take a fresh look at current practices, to make sure we're serving our objectives, and we're going about it systematically. As the chairman referenced, I appointed a task force in each of five areas that are central to the conduct of monetary policy. I'll just reference them and close. First, Fed communications. Second, our balance sheet policy. Third, our use of existing data. Fourth, productivity and jobs. And finally, the Fed's inflation framework. Our purpose here is to make better decisions in the conduct of monetary policy and put these years of high inflation behind us. We are the Federal Reserve, Mr. Chairman, and as determined as ever to fulfill our mission. Thank you, and I welcome your questions.
Thank you, chairman. Each member will have five minutes to ask questions and get answers, and I'll start that off. I'll start off with your working groups. I think credibility equals transparency. And the names that I've seen on your working groups, from Doug McMillon, former CEO of Walmart, to Marc Andreessen on productivity and AI, tells me that you're serious about getting real-world experience and expertise involved in making decisions at the Fed. I want to give you just a minute of my time to walk us through perhaps one or two pieces of that. As we talked about, the importance of having contrast on the committee on the working groups is really important from my perspective. I think it lends itself to having more confidence in the Federal Reserve. I want to give you a minute to talk about one part of it and then I want to move quickly to AI.
All right. Let me be brief, Mr. Chairman, but you're highlighting something that's awfully important. All institutions, including the Federal Reserve which I am so proud to lead, filled with great people, on occasion we need to bring new ideas to the fore. And after 63 months of inflation above the Fed's target, it struck me that any new leader should arrive at this organization and look to the very best minds that we could find. There's a lot of great ones at the Fed but there's a lot of great ones that aren't even in the economics profession. And I reached out to 15 people who I have known and trusted with a diversity of views to see whether they would take the most important questions that are going to be the determinants of monetary policy and the determinants of the economy next five years and see if they could sharpen their pencils and do their best work. It's a move towards transparency and new ideas. I'll just give one example before turning it back to you. In the last couple of days, we've gotten data on consumer price index, today on the producer price index. Any central bank would be happy to have the data going in the right direction. My view is these are all imperfect measures of the state of underlying inflation. So one of the task forces is going to see whether we can do better, have better data from external sources and even better ideas as to how important organizations like the Bureau of Labor Statistics, the Bureau of Economic Analysis might think about how they could do a better job in an evolving economy.
Thank you. We met just a few weeks ago with Dr. Felin who's slated to be the head of the president's economic advisers and we talked a lot about artificial intelligence and the impact it will have on our economy and whether or not it will destroy jobs, create jobs, and ultimately at the end of the day his conclusion was it'll create more jobs. Artificial intelligence has an opportunity to change how we do so many things and much of the debate for me can be bifurcated into automation, things go away, and augmentation, people make more money because production goes up. And you've argued that perhaps there's a way for us to see a reduction in interest rates because of that increase in productivity. One of the things standing in the way of that conversation is what's happening in South Carolina where data centers are meeting real headwinds. New York has basically banned them. We have a moratorium in parts of South Carolina because of issues like electricity bills, water use, aesthetics. So getting to the future that we're talking about and frankly beating China in this AI race might come down to something as important as electricity bills and water usage, which could prevent us from having a serious conversation about productivity gains. Thoughts?
Yeah, I can't think, Mr. Chairman, of a more consequential change to the US and global economy in my adult lifetime than the surge of investment and the potential in and around AI. That's part of the reason why one of my task forces is to focus on what's the effect of this general-purpose technology on both parts of the Fed's mandate, on ensuring stable prices but also on full employment. You gave us both parts of that. We don't have any legislative orphans at the Fed. There's no disfavored part. I would say it is a huge opportunity but it's not without challenges. I'll make two other brief points. I think the United States is extremely well positioned to be at the cutting edge and extract more productivity, which should be good for US companies and US workers, than any other country in the world. Any other country would exchange positions with us in a moment. Second thing is I do want to make it clear that in the near term I think this investment is probably quite good for jobs as we're building out the infrastructure and over the long term my best guess is that this will improve American productivity and will improve the real wages and will help us on full employment. But between the short term and the long term, it can have a disruptive effect and we're attuned to that and it's part of the reason why I wanted to shed some new light on it with some outsiders.
My time is up, but I will submit one question for the record around the issue of indexing our regulatory thresholds. We've seen so much growth since 2019 that our institutions might need to see a little calibration, a recalibration on the thresholds that we have put upon them. Ranking member Warren.
Thank you, Mr. Chairman. So the Federal Reserve has long been plagued by a culture of corruption and coziness with Wall Street. Over the last five years, at least six senior Fed officials have been implicated in serious ethics scandals related to personal stock trading and self-dealing. But instead of trying to repair this broken culture, I'm concerned that you seem to be embracing it. At the time of your nomination, you owned more than a hundred million worth of shares in private investment vehicles called the Juggernaut Funds and THSDFS LLC. And you refused to disclose the underlying assets to the Senate and to the public. You say now that you've sold those shares. In other words, somebody wrote you a check for more than $100 million days before you entered office. Chair Warsh, who wrote that check?
Senator Warren, this is a discussion you and I had in the public square seven weeks ago, and I'm thrilled to tell you that I fully honored the obligations I had under the agreement I had with the Office of Government Ethics, and there is continued disclosure, which I'm happy to make as consistent with the agreement.
Specific question, who gave you $100 million right before you were sworn in? Was it a billionaire who has business with the Fed? Was it Stanley Druckenmiller who's made billions of dollars betting on what the Fed does, or was it a different billionaire? Who gave you the money?
I will fully comply with the Office of Government Ethics. Well, it is an answer actually, Senator, because there are obligations and I will satisfy them.
You got a hundred million dollars that you got just before you were sworn in and you won't tell the American people where it came from.
Let's go to another incident. As you know, the Fed imposes a blackout period where senior Fed officials are prohibited from talking about economic issues with outsiders. The idea is to, quote, 'reinforce the public's confidence in the transparency and integrity of the monetary policy process.' In other words, no one gets some special insider information from the Fed. But shortly after your first FOMC meeting as chair, right in the middle of the blackout period, the Fed's vice chair for supervision, Michelle Bowman, was reportedly the featured guest at a secret dinner hosted by Bank of America for its hedge fund and Wall Street clients. At this closed-door event, she reportedly spoke about both monetary policy topics and regulatory policy. Now, I've called on the inspector general to review her conduct, but you're the guy in charge. As chair, you set the tone on culture. Did Vice Chair Bowman provide any non-public information to the attendees at that secret dinner or discuss any regulatory policy matters that are subject to open comment periods?
Senator, I agree with one of the premises of your question, which is I do set the culture. After my very first week at the Fed, I sent a letter to the 21,000 people at the Fed outlining our culture.
I appreciate that, but we have very limited time and a very strict chairman. So, can you just answer the question about the vice chair and her secret meeting?
Sure. I'm happy to, to the extent I can share it with you. The vice chair has been an excellent colleague in my first seven weeks. I'm aware of the letter you sent to the inspector general. Out of an enormous respect for him, his investigation, what he chooses to do with it, I'm going to leave to him to do without trying to micromanage that. I'd be interested in the judgments that he comes to.
So, you will support his investigation. Have you made your own investigation? Did you ask her if she spoke at a secret meeting during the blackout period?
I agree with the suggestion that the inspector general is an independent actor and I'd be very interested in his decision.
You just said you're the guy in charge. Did you ask her about the secret meeting that took place? Did you ask her?
I can answer a simple question which is I wasn't at the meeting. I don't know the facts, but I'd be very interested in the facts being discovered by an independent inspector.
It's not enough to ask how can you be chair and not ask your own vice chair whether or not she violated the blackout period, violated the law.
I think it'd be inappropriate for me to prejudge facts that are being discovered by an independent inspector.
You can't judge them if you don't ask.
Well, I don't know how to prejudge them if I wasn't in the attendance of a meeting.
She's been an excellent colleague.
I've asked her a lot of things about supervision and regulation because we've been busy doing a lot of real work.
I got to say, I'm going to take the same time you did. I just got to say...
The tone that you are setting is one that seems to invite corruption and that's going to be a real problem.
We've had seven weeks, Senator Warren, and we've set a tone of performance, accountability, responsibility, and integrity.
The floor is yours, Senator.
Thank you, Mr. Chairman. Mr. Warsh, welcome to your first meeting.
Let me give you an opportunity. I think I've got some questions that I think are important with regard to the Basel 3 and what we're going to do with it. But before we get into that, I think you've been basically harassed a little bit in terms of making accusations to you. Let me give you just a minute to perhaps respond in a just straightforward manner to some of this stuff. Anybody give you a hundred million dollars?
No, Senator. No one did any such thing.
Possible that you may have had assets that were sold based upon an agreement that you had as you became the nominee for the chairmanship.
Yes, I had earned assets over a long period of time and went over and above any ethics agreements and have sold or in the process of selling have nearly completely sold everything that I had earned during that period and have rolled those into the equivalent of cash and T-bills.
So basically away from investments based upon the market and back to treasuries.
Yes, exactly right. I thought that that was the prudent thing to do given the responsibilities and the importance of setting the tone at the top. Culture is the big driver of a lot of things and in my first seven weeks, Senator, we're doing our very best in the best of the Fed's traditions to get the culture right, to get the strategy right, and to get policy right. And if we can do those things, all of which are to the left of the decimal point, might not be of such great interest to people that are trading on Wall Street, then I think the decisions we make to the right of the decimal point can be better. So we can do a better job of fulfilling the mandate you gave us.
Yeah. The ranking member had asked a question with regard to another member on the committee, Michelle Bowman, and you indicated that if there was an accusation being made as to an inappropriate meeting, that if the inspector general was doing it, you were going to be hands off on it. Seems to me that that's pretty appropriate. Because if you would have gotten involved in it, the accusation from some members on this committee would have been that you were trying to influence it.
Can you talk a little bit about the logic? Am I on the right track with regard to the reasoning that you have for allowing the inspector general to do the job that they were asked to do in the first place by members on this committee?
Yes, Senator, you're exactly on the right track. I'll just say more broadly that my fellow governors, my reserve bank presidents, they've received me incredibly warmly. I admit that I show up with a lot of ideas for reform in monetary policy and supervision, regulation, and payments. I've only been there a short while, for seven weeks, but instead of an institution acting inert, what I found is my colleagues are really open-minded to change. What I found is we're going to have a good family fight. I'm not imposing ideas. That's part of the idea of the task force as the chairman referenced. But we're going to try to be better at our jobs, fulfill our mission, be accountable, be responsible, and do it all with the utmost integrity. That's my intention. We're early into this. I don't want to prejudge outcomes. We made a lot of progress in a short period of time, and frankly, I'm proud of it.
I like the idea that you're putting together working groups. I think that will give an opportunity for a fresh look at a lot of things going on. As I shared with you in a phone call earlier, it's not a matter of being necessarily vindictive or angry with previous chairs or previous members. It's a matter of making things better for the American people. And that's really what we ought to be talking about today. So, let me just in the minute and 14 seconds that I've got left on mine, let me talk a little bit about Basel 3 in particular. I think you and Vice Chairman Bowman and the respective financial regulators, I think you've done a good job in terms of your roles with regard to the Basel 3 reproposal that was issued this March. The 2023 proposal would have substantially increased common equity capital requirements for category 1 and category 2 banks by approximately 19%, failing to strike a balance between maintaining resiliency of our banking system and doing so without hampering lending. I think this is a really critical item and next to what artificial intelligence is going to do in terms of our productivity, I think it's one of the biggest issues out there. With the June 18th comment deadline now behind us, are there any other categories of feedback that you're weighing more heavily than others, such as the adjustments to leverage ratios or anything along that line? And if I could, is there going to be a go-live date this year sometime? Any idea when you might actually be able to talk about when this thing is going to go public for us?
Senator, well, thank you for your question on supervision and regulation. As I mentioned before, I've shown up with a lot of ideas for reform, not just in monetary policy, but in supervision and regulation, too. When I was before this committee some 20 years ago, there was a debate about what the Basel process should be. Boy, we should get to the bottom of that 20 years later and we should end up with a set of reforms in the United States that makes our financial system and our banks safer, sounder, and more competitive. It is that competition which provides better and more agile credit to the real economy. The Basel endgame, Senator, is not America's endgame. I am happy to work with international regulators to try to find common views, but we're going to do the right thing for the US economy. As you mentioned, we're out for public comment. I'll be very interested in the comments before we go final with a proposed final rule.
Let me just say, this is already off to a good start.
We're going to stay around the five-minute period. Thank you all. Senator Reid, the floor is yours.
Thank you, Mr. Chairman. Chairman Warsh, I want to see if I put a cap on this discussion between Senator Warren and Senator Rounds. When will you disclose who bought your assets? When?
I believe there's periodic requirements under the ethics laws and I'll fully comply with them. I think the next reporting requirement is at some point in the next quarter or so.
And you will fully disclose who you sold your assets to.
Well, fully comply with the law and the ethics agreement.
Thank you. AI is making a huge impact on everything we do, particularly the banking system. And as you're aware, an interagency governmental group, Commerce, Treasury, Energy, etc., has authorized the major banks, the eight major banks, to use Mythos to evaluate their security. Would you agree that's important for all financial institutions to have access to these types of AI tools so that they could analyze their operations for cyber vulnerabilities?
Yes, I think the broad financial system has new vulnerabilities with these new technologies. I wouldn't want to just isolate Mythos, though. The other large language models have rival products. The efficient frontier has changed even in the last month. But as these new models find their way more broadly, our banking system and frankly the Federal Reserve needs to do all we can to patch any vulnerabilities that we have.
What are you doing to ensure that these midsize and smaller banking institutions have access to whatever AI tools are appropriate as quickly as possible?
Yeah. So I share the sentiment, Senator Reid. We are not the deciders as to who has access, but I have not been shy in sharing my views with authorities across the government about the vulnerabilities and have been asking for access not just for the Federal Reserve but for other institutions to a whole range of these new artificial intelligence models so that they can protect themselves. If you said to me what worries you over the course of the next several months, I want to make sure that we're as protected as we can be from foreign actors that want to do us harm.
Well, let me stay with AI, but change the focus a moment. Recently, Governor Waller and New York Fed President John Williams have warned that AI investments may be increasing inflation and many economists have similar warnings. So, are AI investments current drivers of inflation?
This is one of the good family fights. Let me give my own view on it, which might be somewhat nuanced from the way you just described it and some of my colleagues. The shock of AI, the supply shock of AI has an effect on demand and supply. We see the effect on demand much more quickly. We see it in the capital investment I referenced. We see it in the prices of chips that are going up. We're inferring, which is just a fancy word for guessing, when the effects will happen on the supply side of the economy. I don't view a one-time change in prices as necessarily being inflationary because I think there's a supply response in that way. This is different from a foreign conflict and what it might do, which tends to reduce the supply side of the economy. Will it increase measured prices over the course of the next 12 months? I suspect it will be. Whether that's inflationary or not, that's up to the Federal Reserve and we're going to have something to say about that.
Okay. Now, one of the interesting things about our economy, it's becoming more and more productive. But one of the disappointing things is that household pay is not rising relative to that productivity. And we're seeing less benefit from productivity gain. So, what's driving this trend?
Yeah, it's a great question. I don't have a perfect answer to it. Like you, we think a lot about real take-home pay. The part that the Fed can do a lot about is the real part. If inflation were lower, real take-home pay would be higher. That's just the arithmetic. Your other question is a broader one, which is what are we going to see the productivity improvements lead to a surge in wages? Wages have moved up at a reasonable pace, but it's likely that as productivity moves up more, we should see wages move more. Getting that timing right, understanding when that happens, that's a puzzle and it's a puzzle we're going to continue to work on.
In the last 10 seconds, will AI eliminate jobs at a catastrophic rate?
So, you're asking me to prejudge the task force. My short answer is over the long term, absolutely not. I believe that this is a long-term job creator, but will it be disruptive and will some people have their jobs at jeopardy because of the new technologies? On that, I can't offer any sort of guarantee or comfort.
Thank you, Mr. Chairman. Chair, thank you so much for being here with us today. Certainly appreciate the opportunity to have a conversation and obviously so early in your tenure in this new role. In this year's monetary policy report, one of the most encouraging themes is the increased business investment that we're seeing across the country. In Alabama and many places, we're seeing companies expand, manufacturers grow, and communities are benefiting from that investment. I believe that these are good signs and that they're also important for the future because they help us determine whether America remains the most competitive economy in the world. My question for you is, as you look at the economy, what data tells you that today's investments are laying the groundwork and the foundation for a stronger long-term growth and greater American competitiveness?
So, it's a great question and thanks for highlighting the capital investment boom. This is what most countries are searching for. This is the seed corn for the next group of job creation and productivity. To be honest, over the last dozen or so years, we have been waiting for the surge in business investment. I know in some academic accounting sense this is leading to a surge in prices in the next 12 months. I don't want to sound dismissive of it. The surge in prices is real. But I'd sure rather the most successful companies in the world investing in property, plant, and equipment than doing a share buyback. So I'm encouraged by it. The trend is our friend here, and this business capital investment is contributing massively to the GDP we've seen in the last 12 months. My colleagues know I'm not big for forward guidance, but I would guess that that trend continues. What gives me optimism about it? Well, when the private sector deploys this amount of capital, they must see something shiny at the other end of that rainbow, they must see a very good return on investment. That's why they're taking this capital and they're putting it to work. I tend to think that private investment has a multiplier way higher than one. I'll let you and others judge whether that's true of government spending, too.
I'm going to go ahead and switch gears because I know we're on a tight time frame today, which I appreciate. And I'm going to follow up on a question that the chairman asked. I'd like to get you to kind of dig into this. Some banks are already approaching and crossing into new tailoring categories, and they're making staffing and compliance and long-term business decisions based on thresholds that haven't been updated since 2019. At the same time, the Federal Reserve continues to rely on those categories and other regulatory frameworks. So my question is, how are you thinking about updating these tailoring frameworks when it comes to what banks can expect to see in proposals in the future?
So it's a great question, one I take seriously to be candid with you and the chairman and the other members of the committee. Monetary policy has distracted me a bit in the first seven weeks, but the Federal Reserve chairman is supposed to be the chairman of monetary policy and payments and consumer affairs and supervision and regulation. But I can tell you this. Vice Chairman Bowman has been working on these initiatives. She has briefed me about them. And broadly, I'll step back and say modernizing our banking systems, streamlining regulations so that the rules that apply to the systemically important financial institutions are not one-size-fits-all for every other.
The secret to the American economy is we have a few thousand banks and other providers of credit who know their smaller markets bigger. I'd rather have that system than what most of our G20 peers have where they have a half a dozen institutions implicitly backed by their government. I think reform is coming to supervision and regulation. I have my own ideas that might be as dramatic as I've already shared on monetary policy here. And I think the sooner we can get to the bottom of it, the better. If I could say one more thing, the reforms we've been putting in place over the last 15 years coming out of Dodd-Frank, as we learned in the Silicon Valley Bank example and the First Republic example, they didn't work perfectly. My predecessors had very little choice but then to do another overall bailout. We don't want that to happen again. So, we want to tailor the rules and the capital so they serve the best interests of the US economy, which I describe as a system that is safe, sound, and competitive. And I just hope given what you've said, we double down on reviewing the framework. We know how important tailoring is and also just the need for regulatory certainty. So, thank you for that. In my last remaining seconds, I just want to say thank you for your commitment in the first seven weeks, almost two months. You said it earlier, but to performance, to accountability, to responsibility, and to integrity. I appreciate what you're doing and look forward to continuing to work with you.
Thank you, Senator Warner.
Thank you, Mr. Chairman. Chairman Warsh, it's good to see you again. Seven weeks in, you got a hell of a job. Inflation's still too high. How you predict the president's chaotic foreign policy wars in the Middle East. I'm going to come to an AI question, but let me be clear. As I said to you yesterday, I didn't vote for you, but we're going to find a lot of common ground to work together. I am going to hold you and I've been appreciative of your comments about inflation, about the Fed's independence, but I think there are many common areas we can work together on and look forward to that. I want to hit, you know, one of the things that most impressed me in our first meeting was your recognition that probably the biggest issue you're going to face is AI. My two cents is I think it is going to have long-term, I agree with you, going to be job creation. Very short term I think you may see some upsurge in terms of energy production and data center buildout. Years two through five, two through six, I think there could be massive economic disruption particularly towards new college grads. You know, it's policymaker's job, but if this is going to have the potential effect, I hope I'm wrong, but I'd take a bet with you that three years out, we could see 30% recent college grad unemployment. If we see that, what do you see as the Fed's role in terms of urging your actions, but also helping us sort that out?
Senator, first of all, I appreciate it.
Don't say nice things about me. He's got me on a clock. Answer my question.
Let me just say this. I appreciate that you haven't given up on me. I haven't given up on you. I haven't given up on your colleagues. I'm the independent head of a central bank. No matter how people voted, I'm going to be serving all of you.
This doesn't count against my time.
AI, let me get to the core of your question. I am more confident that there will be a surge in output because the US is at the cutting edge of AI than any certainty about the effect on the labor market in the next few years. The United States will be a winner. That is my informed judgment. But this is a time filled with both challenges and risks. We take both parts of our dual mandate seriously. Do I believe that the productivity improvements over time will be structurally disinflationary? I do. I believe everything technology touches ultimately gets cheaper. Your background, I think, would be consistent with that. What are going to be the effect on the labor markets in years 2 through 5? It's a fair question. The way I would frame it to you on college graduates, if you're a new college graduate, AI is probably native to you. You've been playing with AI effectively since your high school years. I feel as though you likely have the skills and the intuitions the same way that people of my generation or younger were native to the internet. If you've already been in the workforce for a while and you're a little resistant to change, that's where the encouragement needs to be to think about how these skills can make you more productive. These are fair questions. I don't have easy answers, but I do have a task force that we have to work.
We have to work together on because if we hit this
bump and I think it's going to come, we got to collaborate. Now, Senator Reed asked a very good question about models and I 100% agree. Models are already yesterday's news,
right? Um because these models are coming out so quickly and they pose such security risks. I think it's incumbent because of the risk it provides to our financial system that at some point you're going to be and I'm asking you now. I think personally, I believe we need some level of mandatory testing be pre-release because of the potentially draconian and dramatic effects. Now, how long, who's on that panel is critical, but what do you think about pre-testing release regime going forward more than just the voluntary willingness of a company to come forward?
Yeah. So, two things. First, these models and their capabilities are growing at an exponential rate. In technology, we would say hyper Moore's law. It wasn't long ago people sitting in my position thought that the US was a time of secular stagnation. All the good stuff had been invented. Boy, that seems awfully naive. I don't have, as it currently structured, decision rights as to who has access, but I do have a bully pulpit, as you mentioned, and I'm unafraid to share my views with the Treasury Secretary and others. The cutting edge is moving very quickly. Key institutions are vulnerable. The sooner they can mitigate their vulnerabilities, the better. I'm looking forward to
I hope that you will be willing to advocate moving on beyond a voluntary regime because of the downside risk. 12 seconds, you know, quickly address the role of all of the Federal Reserve banks and your vision of what the role they should play.
So, very quickly, I'll just say this. We should be good stewards of taxpayer money. We should be consolidating functions where we can. But my mental model, Senator, as I mentioned to you yesterday, is we should have 12 centers of excellence. I've got more than 12 problems on my plate. And if each reserve bank were to develop an expertise on something that matters to our remit and the American economy, I'd encourage them to develop that advantage.
Thank you, Mr. Chairman. Chairman Warsh, great to see you. Thank you for being here and congratulations on your first semiannual reports. Good to see you here again. We got some good news this week. Inflation was down and that's progress. Progress under this administration and under your new leadership at the Fed. During the Biden administration, we saw reckless spending that drove prices up and left Nebraska families to foot the bill. In 2019, the federal deficit was roughly $900 billion and by 2024 that was $1.9 trillion. And we saw inflation go up 20% really stressing Nebraska families at the grocery store. Cleaning out this mess is going to take discipline and it's going to take reform. Chairman Warsh, we discussed in our meeting also how to implement some reforms such as process improvement. We talked specifically about lean six sigma and the opportunity there. You promised to have a reform-oriented Federal Reserve and we're willing to break up or make a break from some of the mistakes of the past. I commend you for that and want to work with you to see it through. One of the most important places to start is with the Fed's balance sheet, an issue I've consistently raised with other Fed governors. The Fed expanded its balance sheet dramatically during the pandemic, peaking at nearly $9 trillion. Since 2022, the Fed has shrunk it down to about 6.5 trillion in December 2025. And I'm glad to see that the Fed was making progress over the last few years, but the balance sheet is still not down to pre-COVID levels. Actually, the balance sheet is rising again and now stands at around $6.7 trillion today. Chairman Warsh, do you see the balance sheet increasing again as a trend in the right direction or the wrong direction?
Senator, thank you for the question. I've been focused on the Fed's balance sheet, frankly, since my last day at the Fed some 15 years ago and to the present. I don't want to prejudge the conclusions of this balance sheet task force where, as the chairman said, I put together a team of rivals to fiddle with it, to evaluate it, to come up with their own judgments. But I'll give you my predilections. Monetary policy is made currently through at least two material instruments, interest rates and the balance sheet. In fact, we grew the balance sheet, created quantitative easing when I served the last time in the darkest days of the crisis because we had already cut rates to zero. So, expanding the balance sheet had the intent of helping markets clear, but it was also another tool of monetary policy. I still believe that is
Wasn't that supposed to be temporary?
Indeed that was our entry principle was that we would get out of that business. The central bank has not for a whole range of reasons gotten out of that business. My general view is as we think about inflation risks and we think about the conduct of monetary policy at large, we have two instruments that we should be thinking about. The balance sheet is one of them. I'll make only one other point. Monetary policy needs to be architected, needs to be designed by the policy makers around the FOMC. The plumbing, the operations, how we do that is conducted by the New York Fed. I want the architecture to drive the plumbing, not the plumbing to drive the architecture. We're going to make a monetary policy decision with respect to the balance sheet. I'm very open-minded to changes and any changes we make will be well discussed, well shared and I think quite deliberate and the financial markets who have seen the balance sheet grow effectively for a generation, they'll have plenty of time to adjust if we make changes.
I know you said you just wanted to make that one comment, but I'm going to push you to ask for a little more. What do you believe is the smallest balance sheet that the Fed could operate with?
My predilection, my inclination is interest rate policy should be the driver of monetary policy. The balance sheet should be as small as practicable to conduct operations and the balance sheet can expand when there's a crisis. The balance sheet can also expand if an institution needs liquidity. That's part of the reason why we've created a discount window. But a permanently large balance sheet with a duration of assets that are larger than the duration of assets of treasuries, for example, that are held in the broader public markets, boy, that sure seems a little bit more like fiscal policy than I'm comfortable with. So, I would like us to have a leaner, meaner balance sheet, but it's a discussion for my colleagues, and I've got three real pros that are going to help us think it through.
All right. Well, I have run out of time, and I'm sure the chair will be happy. I'm going to maybe get done before it reaches zero. But I do have a question I'll follow up with for the record on scams because this is something that the banking industry is telling me they're increasingly seeing and it's costing people who have deposits a lot of money. So I'll follow up with that.
Senator, we're opposed to scams, but I'm happy to follow up.
Good. Good to hear. Good to hear. This is great. Senator Van Hollen.
Thank you, Mr. Chairman. And Mr. Chairman, we agree on that point. Let me turn to the headline inflation numbers that came out yesterday at 3.5% above the Fed's 2% target. Prices are too high for families and we need to get them down. I think we can agree on that. At your press conference a few weeks ago, you said that higher inflation in part, and I quote, reflects supply shocks that have driven price increases in certain sectors, including energy, unquote. In other words, a reason that we're seeing prices go up is that the supply of products and services has dropped in some areas of the economy, right?
And I do think it's important that the public understand the causes of some of these supply shocks. You would agree, would you not, Mr. Chairman, that the war in Iran has caused a supply shock in the energy markets?
Yeah, the military conflicts have caused the price of oil to be higher than it otherwise would.
Absolutely right. And Americans are paying the burden of that as we go. We've also seen supply shocks in other areas. Last year, your colleague Austan Goolsbee, president of the Chicago Fed said that, and I quote, 'A tariff is like a negative supply shock,' unquote. And we've seen plenty of tariffs. Obviously, we have the Supreme Court decision that may bring those down over time, the impact of it. But the negative supply shocks have been real and can be traced to the Trump administration agenda. So when you say that supply shocks are part of the reason prices are going up, you would acknowledge that they're the result of decisions that have been made by the president like going to war with Iran, right?
So what I'd say is particular price shocks happen to particular prices that we don't have control over. But I don't want to suggest we don't have control over inflation in the medium term. That's our job. But drought affects beef prices. Other things affect oil prices and milk prices. And I understand that has an effect on people's household budgets.
Indeed it does. And I think we've seen the price of energy go up by billions and billions of dollars. And the American people are essentially paying for that at the pump and other places in their pocketbooks. As you know, your predecessor as chairman was regularly harassed and berated by the president of the United States on social media with respect to interest rates. At least so far, you seem to have escaped that fate. But I do think it's important that we have an understanding of whether or not the president is trying to influence Fed conduct. I know you were asked recently at your last press conference about any communications with the president. I think your response was on the president, I don't have anything for you. Mr. Chairman, was that a yes or no with respect to whether you've had communications with President Trump?
So, I like what I said the first time, Senator, I don't have anything for you. I will say this though. I do meet with the Treasury Secretary. I talk to him often between that. I just want to make sure I make my own decisions on policy.
I just want to understand the answer. Have you or have you not had communications with President Trump since you took this position?
So, I just don't want to be in the business of sharing discussions that the president and I have. I will tell you what I've said to the president repeatedly instead of the Treasury Secretary. They chose an independent guy to do an independent job and that's exactly what I plan on doing. And I'd like to think over the last seven weeks, given the decisions we've made and the things we've done, that it's not just words, it's actions now to start to demonstrate that.
So, Mr. Chairman, I mean, I think it's important I take from your answer, you've had communications, you don't want to disclose the content. Will you commit to do what your predecessor did, which was to release your appointment schedule and conversations with President Trump?
I don't know what the past practice was. I will be in full compliance with the law. As I understand it, there's an ongoing FOIA request on my calendar and I will share it consistent with the law. I believe the first one's already come out.
I think this wasn't in response to any illegal requirement forced by FOIA. It was a question of transparency. And I do think given the president's past record of trying to influence Fed behavior via social media with respect to your predecessor, if he's trying to influence Fed behavior through private conversations with you, I think that needs to be something the public is aware of. And I'm asking you whether you will commit to disclosing when you have conversations with the President of the United States.
Senator, I can offer you this assurance. The president has not before I took this office, before I raised my right hand, he has not tried to influence the conduct of monetary policy. And if he tried to, I would continue to keep my head down and do the job. I don't have a long record, but I've got a 7-week record, and before that, I had a 25-year record, and I think that should count for something.
I appreciate that. I hope you'll just follow the president, your predecessor,
Senator Kennedy, the floor is yours.
Well, Senator Van Hollen's my buddy, so I don't, this is not meant toward him, but I always get a kick out of my Democratic friends talking about transparency, you know, toward the end, God bless him, you could bake a Thanksgiving turkey in the time that it took President Biden to walk across the stage and they kept it quiet till they couldn't. I'm sorry it was in that condition, but this transparency stuff cuts both ways. What's wrong with you talking to the president of the United States?
So Senator, I've got a wide lens. I'm interested in hearing points of view from a whole range of people. We have a narrow remit, but I'm interested what's happening in the world in the Middle East.
I mean, is there anything wrong with it? Do you have to when you do it, do you have to like go out and look for the last phone booth in Washington and put a bag over your head and sneak in there and call him or return his call? Is anything wrong with that?
I certainly don't feel uncomfortable receiving a call from the chairman of this committee or the president of the United States.
Okay. Do you think Ben Bernanke ever talked to the president?
When I was a governor, I recall several conversations and when I was a young staffer in the White House, I remember being honored by him coming into the White House and meeting with the president and the president's advisers quite frequently.
Okay. I think what would give me concern and I think it's the basis for my colleague's concern is that you just do whatever the president says. But you're not going to do that, are you?
Senator, I'm going to call it the best I see it. The president never asked me to do anything inappropriate and if he did, I wouldn't do it. I'm going to follow the law and do my best to follow the remit you gave us.
Okay. So, in the last year or so, recent past, I'll say the Fed cut rates three times because they were worried about the labor market. Is that a fair assessment?
That's my sense of what they did.
Well, that's a longer discussion.
They did. Is the labor market in a mess today?
The labor market's in good shape, but I wouldn't want to call that causal connection.
So, I don't have much time, Mr. Chairman. I love you like a taco, but I'm going to... you don't pull a fast one on me. So it worked. Okay. Now we have inflation. Okay. What caused it?
In 20 seconds. Inflation is caused when a one-time change in prices broaden out.
I know what inflation is and the Fed caused it.
Okay. Well, I would say what is causing it is AI, the conflict with Iran, duh, and probably the residual effect of the fact that some imports have become more expensive. Okay. And I think any fair-minded person would conclude that there was a lot of economists said, 'Oh, you know, the impact of inflation on the rise in the cost of imports would be a one-shot deal.' You know, you can teach that in Econ 101. I don't know. I think it's probably had a residual effect. Okay. Is it temporary or is it permanent? The inflation?
It's not going to be permanent under my watch, Senator.
