Federal Reserve vows to curb inflation as AI investment supports U.S. growth

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Fed to curb inflation as AI boosts growth

Highlights

Fed Chairman Warsh told Congress the central bank's priority is fighting persistently high inflation driven partly by soaring energy prices.
Five Fed task forces are reviewing communications, technology, balance sheet, economic data, and inflation approach as part of a broad institutional reset.
Warsh highlighted accelerating business investment, especially in data centers and AI, as a key pillar supporting continued U.S. economic resilience.

Congressional testimony outlines policy and review agenda

As reported by CNBC, Warsh says in prepared remarks for appearances before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday that the Fed's top priority is to get monetary policy right and push the inflation surge of the past five years into the past.

Warsh says persistently high inflation has imposed an undue burden on U.S. households and businesses, with higher costs spreading broadly across the economy and the latest pressure driven in part by soaring energy prices. He adds that while monthly price swings are inevitable in an unsettled world, underlying inflation over longer periods is determined largely by monetary policy, and that Fed policymakers have no tolerance for persistently elevated inflation.

The chairman is appearing before Congress as part of the Fed's twice-yearly monetary policy report. He also says five task forces are conducting a broad review of the central bank's communications, technology, balance sheet, economic data and its approach to inflation, which he describes as part of a new chapter for the institution.

AI spending becomes a pillar of economic resilience

Warsh says the U.S. economy is expanding at a solid pace and remains resilient despite recent developments. He describes business investment as the most striking feature of current conditions, saying the pace appears to be accelerating because of data center construction and strong demand for AI-related equipment and software.

He has previously argued that an AI-driven productivity boom is likely to be disinflationary, though that view is challenged by some economists and fellow Fed policymakers. His latest remarks combine that longer-term optimism with a renewed emphasis on near-term inflation control, signaling that the central bank is trying to balance support for a fast-changing investment cycle with a hard line on price stability.

Warsh also strikes a more conciliatory tone toward the institution than he did before taking office. While he had previously criticized Fed incumbents and promised regime change, he now says it is a privilege to return and work again with colleagues at the central bank.

In our earlier report on the rotation in U.S. equities, we noted that investors were moving beyond megacap tech and into smaller companies benefiting from the AI infrastructure buildout and domestic-growth tailwinds. That piece highlighted how hyperscaler capex and policy changes were helping lift small-cap suppliers, while also flagging concerns that parts of the rally looked frothy due to concentration in unprofitable tech names.

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