Market Overview

New Fed Chair Kevin Warsh testified to Congress that he meets regularly with Treasury Secretary Scott Bessent and speaks with him "often" between their mandatory weekly breakfasts—but insists this doesn't compromise the Fed's independence from political pressure (CNBC). Warsh, appointed by Trump (who has repeatedly called for lower interest rates), said he's comfortable receiving calls from the president and that his credibility depends on making decisions based on law, not politics. The delicate dance matters because markets need to believe the Fed sets rates based on economic data, not White House wishes; if Warsh looks like Trump's puppet, his power to fight inflation evaporates.

Fed Chairman Warsh declared inflation a "tax on the American people" and pledged a "regime change" in how the Fed operates, announcing five task forces to overhaul everything from communications to how the central bank measures price pressures (CNBC). Inflation has stayed above the Fed's 2% target for 63 consecutive months—a historic failure—but Warsh took a swipe at his predecessors' 2020 policy that deliberately allowed inflation to run hot, calling it "a mistake." His message: the old Fed is gone, and he's rebuilding it from the ground up to make sure inflation never becomes this entrenched again.

Fed Chair Warsh highlighted rapid business investment in data centers and AI equipment as "the most striking feature" of today's economy, suggesting the AI buildout will eventually prove disinflationary as productivity gains bring costs down (CNBC). He acknowledged the Fed doesn't yet know how much economic benefit will flow from the AI boom but called it "inevitable" that what markets now call "AI investment" will soon just be called "investment"—meaning it's becoming the normal engine of growth. This matters for rate decisions: if Warsh believes AI will lower inflation naturally, he has less reason to keep rates high, which aligns conveniently with Trump's desire for cuts.