Kevin Warsh faces a defining decision at his second Federal Reserve meeting as chair: whether to raise interest rates to reinforce his commitment to lowering inflation or leave rates unchanged while waiting for more economic data, The New York Times reports. A rate hike could strengthen the Fed’s anti-inflation credibility and reassure critics that Warsh is willing to act. However, it could also confuse markets because recent inflation data has been relatively mild, increase tensions with President Trump, who favors lower rates, and add uncertainty amid volatile oil prices linked to the Iran war. Holding rates steady would give the Fed more time to assess whether inflation continues to cool, as many economists expect. But doing so could make it harder for Warsh to justify his recent pledge of having “no tolerance” for elevated inflation. Within the Fed, officials are divided. Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack favor raising rates to prevent inflation from becoming entrenched, while Vice Chair Philip Jefferson, New York Fed President John Williams and Governor Christopher Waller prefer waiting for additional evidence that inflation is easing. During congressional testimony, U.S. Sen. John Kennedy of Louisiana pressed Warsh on how he would tackle inflation. Warsh notably did not call for raising interest rates. Instead, he emphasized the Fed’s commitment to restoring price stability, taking responsibility for its performance and relying on five task forces he created to study the Fed’s policy framework and inflation.  He also said price increases tied to artificial intelligence investment may not be inflationary because supply can expand, while supply shocks caused by war may pose a different challenge for the Fed. The New York Times has the full story. A subscription may be required. ...read more read less