Wasserman reiterated that inflation is a choice, stating the Federal Reserve has the tools to achieve price stability and will not shift blame; if pressured by Trump, he would fulfill his duties; he pledged to break 'sticky prices'; he suggested that the low-rate policies of the 1990s—implemented during a productivity boom—should not be mechanically applied to today’s AI investment surge; he emphasized the Fed’s dual mandate of employment and inflation and affirmed it would not venture into other areas, adding that sufficient warning would precede any balance sheet adjustments; five Fed working groups are currently in a 'fact-finding phase' and will first share their insights with policymakers; the Fed will discuss reducing the frequency of public statements, clarifying that communication adjustments aim to ensure sound monetary policy—not to reduce transparency; the Fed should not arbitrarily intervene in markets, though using its balance sheet during crises is an exception. Dubbed the 'new Fed wire,' Wasserman told lawmakers the Fed has zero tolerance for high inflation, reaffirming its inflation-control objective without signaling any direction on interest rates.
In his first semiannual congressional hearing on monetary policy since taking the helm at the Federal Reserve, Fed Chair Waller stated that he would “do my job” if pressured by U.S. President Trump, and that he would act based on data even if criticized by Trump. This marks Waller’s most direct comment to date regarding Trump’s challenges to the Fed.
Testifying before the House Financial Services Committee on Tuesday, July 14 (Eastern Time), Waller was asked how he would respond if Trump continued targeting the Federal Reserve—for example, by attempting to remove Fed Governor Cook. Waller replied that the U.S. Supreme Court recently reaffirmed the Federal Reserve’s independence in setting monetary policy.
Waller told lawmakers, “If I become a target, I will continue to do my job.” When asked a series of questions—including whether he would still base policy decisions on data even if Trump pressured him to lower borrowing costs—he said: “The Fed’s independence is sacrosanct.” He added, “Our credibility is strengthened if we remain independent and are perceived as such by the public... That is precisely the best way for us to do our job.”
Commentators suggest that Waller’s relationship with Trump could be tested in the coming months if high inflation persists and other Fed officials’ calls for interest rate hikes become impossible to ignore. For now, at least, Waller appears to have taken at face value Trump’s earlier statement upon his appointment, when Trump told him to be “fully independent… don’t look to me for cues.”
Media outlets noted that during this hearing, Waller firmly articulated his commitment to achieving the inflation target and clearly drew a line against Trump’s interference, seeking to firmly establish his authority as the Fed’s leader. For markets, the Fed’s future approach—characterized by 'less talk, more action,' the introduction of new inflation metrics, and looming internal debates over balance sheet reduction and policy tools—signals a complete reshaping of the policy trajectory seen in recent years.
The Fed has the tools to achieve price stability; it will not deflect responsibility for inflation.
In his prepared remarks for the monetary policy hearing, Waller emphasized that the Federal Reserve has zero tolerance for persistently high inflation. Opening comments by Financial Services Committee Chair French Hill also indicated that high inflation is a key concern for lawmakers. He stated that Congress expects the Fed to remain focused on fulfilling its mandate of price stability and to persist until that goal is achieved.
Hill not only condemned the sharp surge in inflation but also criticized what he described as the Federal Reserve’s recent 'mission creep.' He said, 'The Fed must avoid repeating past mistakes, undertake internal reforms to safeguard the long-term independence of monetary policy, and restore its reputation as a non-political institution carrying out statutory mandates assigned by Congress.'
Hill told Waller that the Fed has control over how it responds to inflation. He asked how, given its existing policy tools, the Fed plans to achieve price stability. He added, 'The Fed might choose to “look through” these inflationary pressures, but it has held that view before—and was wrong. High inflation affects Americans’ lives today, not some hypothetical future based on long-term forecasts or inflation expectations.'
In response, Waller acknowledged, “The current situation is complex and fluid.” However, he reiterated that inflation is a “choice” made by policymakers.
Waller stated, “I have been highly critical of the 2020 version of the Fed’s framework—that’s no secret. The framework adopted that year was a mistake and was never properly debated. We want inflation increases to be more constrained. The Federal Reserve has the tools to maintain price stability.”
Waller said, 'Now is not the time for us to deflect responsibility or blame others. The Federal Reserve can—and will—achieve price stability. We possess the tools you mentioned—whether interest rate policy or balance sheet policy—to accomplish this objective. We have the means to achieve our goal.'
Waller further indicated that he does not believe there is a harsh trade-off between price stability and maximum employment.
Waller said that as long as the Fed ensures price stability, the economy can thrive and businesses will be able to hire more workers. Therefore, there is no so-called “cruel dilemma” between the Fed’s dual mandate from Congress—it is not an either-or proposition. He added that his view on this matter differs slightly from some of his peers in the economics profession.
Commitment to break 'sticky prices'; policies from the 1990s productivity boom cannot be simply reapplied
Regarding the broadly softened U.S. June CPI inflation data released earlier on Tuesday, Waller reiterated that he would not declare the Fed’s inflation “mission accomplished.”
Waller declined to indicate whether rate hikes have ended, stating that forecasting decisions by the Federal Open Market Committee (FOMC) is “none of my business,” and warned markets against complacency—specifically, against assuming “the job is done” just because June’s CPI recorded its first month-over-month decline in six years.
Waller said, “While I have reviewed the CPI data released this morning, and it performed better than expected, I do not agree with cherry-picking data points. I will not stand up and say ‘mission accomplished.’ On the contrary, I believe there is still a great deal of work ahead of us.”
Waller pledged to break 'sticky prices.' He stated that the Fed’s role is to ensure that short-term fluctuations in specific prices 'do not spread or become entrenched,' and lamented that the opposite has unfortunately occurred over the past few years. He pointed out that, according to 'economic principles,' once inflation has run above target for a sustained period, bringing it back down typically becomes more difficult—a phenomenon known as 'sticky prices.'
Waller said, 'Those days must be behind us. It is our duty—and my commitment to you—to break this sticky pricing.'
Reporters noted that during the hearing, Waller made a clever remark: “Having witnessed one productivity boom means you’ve merely witnessed that one productivity boom.” Minutes later, he added, “Having witnessed one financial crisis means you’ve merely witnessed that one financial crisis.”
Ultimately, Waller’s point was: “I will be extremely cautious when drawing analogies.”
The media viewed Waller’s remarks on a productivity boom as particularly significant, especially given that some see parallels between the current AI investment surge and the IT investment boom of the 1990s.
Treasury Secretary Bessent, White House National Economic Council Director Hassett, and even Wash himself have previously noted that in the mid-1990s, then-Fed Chair Alan Greenspan astutely recognized an emerging productivity boom and wisely maintained the Fed’s low-interest-rate policy. Wash’s witty remark on Tuesday about a productivity boom suggests that this historical precedent should not be simplistically applied to today’s circumstances.
In his hearing testimony, Waller acknowledged that AI is driving a substantial increase in business investment but noted it remains unclear to what extent the economy will benefit from AI-related investments.
At the hearing, Waller stated that, in the long run, AI implies meaningful improvements in productivity. He described the AI boom as 'possibly the most transformative development I’ve witnessed in my adult life,' noting that the technology is changing not only how innovation occurs but also its pace. He speculated that AI would serve to 'augment' existing jobs—acknowledging potential short-term disruptions—but added, 'it will also create many other employment opportunities.'
Focusing on the Federal Reserve’s dual mandate of employment and inflation
During the hearing, Republican lawmakers repeatedly stressed a key point: the Federal Reserve had ventured into matters beyond its 'dual mandate,' such as diversity and climate change issues.
Worshe clearly stated that the Federal Reserve’s responsibilities are well-defined; were he at the helm, the Fed would focus exclusively on its dual mandate when formulating monetary policy.
He said, 'You (Congress) have tasked us (the Fed) with achieving maximum employment and price stability, and you’ve also assigned us many other challenging responsibilities. We will implement a series of reforms outside of monetary policy. Our agenda is already fully packed, and I assure you we will not venture into other areas.'
Sufficient advance warning will be provided before any balance sheet runoff adjustments.
Waller emphasized that the balance sheet is part of monetary policy, describing it as 'more than just plumbing.' Analysts interpreted this view to mean that Waller believes the Federal Reserve can tolerate greater volatility in short-term funding markets. While the Fed has standing repo facilities to address market stress, many are reluctant to use them; thus, Waller may consider this backstop sufficient to manage any future turmoil in repo markets.
Waller stated he does not seek to return the Federal Reserve’s balance sheet to its 2006 level—the size prior to multiple rounds of quantitative easing. However, he believes there exists a 'sustainable equilibrium' in which the balance sheet would be smaller than its current $6.74 trillion level. Such a change would not happen abruptly; any adjustment would be carefully considered and require 'a considerable amount of time' from decision to implementation.
He noted that his reservations about the Federal Reserve’s balance sheet policy were no secret. However, he declined to prejudge the conclusions of the working group examining this aspect of the Fed’s operations and emphasized that any changes would be communicated thoroughly in advance.
Worshe said, 'No adjustments to balance sheet policy will be made without providing ample advance notice to both the (Federal Open Market) Committee and the broader financial markets.'
Waller stated that while he understands the necessity for the Fed to intervene in markets to establish fair prices during crises, holding assets that exceed the size of the market itself during relatively calm periods pushes the Fed, in the words of former Fed Chair Volcker, to 'the edge of exercising power.'
Wash added that he believes the Federal Reserve should avoid venturing into fiscal policy when addressing balance sheet issues. "We want to stay away from fiscal policy matters," Wash said.
Five Fed working groups are currently in the 'fact-finding phase' and will discuss reducing the frequency of public statements.
In his prepared testimony, Wash outlined the responsibilities of the newly established five Federal Reserve working groups. At the hearing, Wash stated that he would be happy to provide members of Congress with 'regular' updates on the progress of these working groups from now until year-end, adding, "By then, I hope we will have reached some substantive conclusions."
Wash said the five working groups are in the 'fact-finding phase,' and the respective teams will 'first share their views with policymakers.' He pledged that the operations of these working groups would not be conducted 'in secret.'
Wash noted that there would be some 'overlap' in the mandates of the working groups—for example, between the group responsible for the balance sheet and the one handling communications.
Wash previously stated that the working group responsible for communications would evaluate the Federal Reserve’s press conferences, economic projections, policy statements, and public speeches.
During Tuesday’s hearing, Wash stated that he would not commit to establishing a fixed public standard requiring automatic press conferences for decisions or procedural changes made by the Federal Open Market Committee (FOMC). Instead, the decision to hold a press conference would be made on a case-by-case basis.
Wash said the Federal Reserve would seek to engage in deeper discussions and reduce the frequency of issuing statements. He noted that the objective of this review of communication mechanisms—and any related adjustments—is to ensure the appropriateness of monetary policy.
Wash said, “I don’t believe any adjustments to our communication approach are intended to obscure facts or withhold information. The goal of adjusting how we communicate is singular: to ensure that monetary policy is implemented correctly.” In other words, reforms to communication practices are not meant to reduce transparency.
When asked by a lawmaker why the Fed should abandon the so-called 'dot plot,' which reflects officials’ interest rate projections, Wash said he looked forward to the conclusions from the working groups he had established. He also expressed being impressed by his colleagues’ willingness to re-examine the Fed’s various strategies with an 'open mind.'
Wash also stated that, in his view, adopting a 'more cautious' approach in external communications would be more appropriate.
Markets should not be arbitrarily intervened in; using the balance sheet during crises is an exception.
Wash reiterated that he would not prejudge the conclusions of the balance sheet working group. However, he noted that the Federal Reserve should act as a “price taker,” not a “price setter.” From this perspective, Wash likely supports not targeting the 10-year Treasury yield.
Wash said, “We should not intervene in markets arbitrarily.” However, he also acknowledged an exception—in times of emergency: “As for crisis situations, I don’t want anyone to mistakenly believe we would stand idly by. Of course, I would prefer to stay out of it, but that cannot be guaranteed.”
Wash stated that he is willing to aggressively employ the balance sheet as a monetary policy tool during times of crisis, but once the crisis has passed, monetary policy 'should be driven almost entirely by interest rate policy.' Interest rate policy does not favor one group at the expense of another.
He believes that interest rates should serve as the dominant policy instrument.
Declined to comment on Trump and other executive branch officials
Maxine Waters, the Democratic leader of the Financial Services Committee, argued that Trump is undermining the independence of federal regulatory agencies while using his office to 'extract enormous personal benefits.' Waller responded that the Federal Reserve would 'stay within its lane' and avoid politics. He declined to comment on Trump’s personal financial disclosure reports.
Waters asked whether Trump and other executive branch officials should be permitted to hold stakes in companies they regulate, including those involved in cryptocurrency assets. Waller declined to take a position, stating that the Federal Reserve would focus on its own responsibilities and would not comment on officials outside the Fed.
Waters then turned to discuss prediction markets, and her remarks appeared to touch on insider trading related to government decision-making. Worshe mentioned that during his first week on the job, he sent a letter to Federal Reserve staff emphasizing the importance of upholding the Fed’s integrity.
Editor/Stephen