Federal Reserve Chair Kevin Warsh delivered key messages on inflation and monetary policy at the European Central Bank's (ECB) annual forum in Sintra, Portugal.
Warsh noted that inflation risks had declined in recent weeks, and stressed that the Fed must continue its efforts to return to the 2% target. 'Monetary policy decisions will remain data-driven, and we will not provide forward guidance on interest rates,' he said.
Warsh said that the decline in energy prices following the memorandum of understanding signed between the US and Iran had eased inflationary pressures, but inflation remained slightly above pre-war levels.
Touching on the Fed's independence, Warsh stated, 'Despite political pressure for rate cuts, the Fed's independence will not change; we will continue to make our decisions free from any interference.'
Artificial intelligence and economic growth
Warsh predicted that artificial intelligence would boost productivity and economic growth in the medium term, and said the US would be among the countries that benefit the most from this technological revolution. He noted that for now, the impact is concentrated in capital expenditures on data centers and digital infrastructure.
The Fed Chair said, 'We are closely monitoring the effects of artificial intelligence on inflation and the labor market. The US economy is strong on the demand side, and the labor market remains stable.'
Sharp rise in gold prices
During Warsh's remarks, the spot price of gold rose 2.1% to $4,089.49. After hitting its lowest level since November in the previous session, gold posted a nearly 14% loss in the second quarter, its worst quarterly performance since 2013. Gold futures contracts, meanwhile, rose to $4,036.95.
While the drop in oil prices after the US-Iran agreement has eased inflation concerns somewhat, markets still expect at least one more rate hike by year-end. Gold, a non-yielding asset, remains under pressure due to expectations of tight monetary policy.
Slowdown in manufacturing sector
According to Institute for Supply Management (ISM) data, the manufacturing PMI fell from 54 to 53.3 in June, remaining above the 50 threshold that separates growth from contraction. The sector thus recorded six consecutive months of expansion.
The slowdown was driven by fading effects of the precautionary orders companies placed during the US-Iran war to guard against supply disruptions. Meanwhile, spending on artificial intelligence continued to support manufacturing, particularly in areas such as chips, electrical equipment, machinery, and computer products.
Input costs eased from the previous month but remained elevated. The price index fell from 82.1 in May to 73, but price increases continued for copper, aluminum, semiconductors, and electronic components. The ceasefire between the US and Iran and the return of oil prices to pre-war levels brought a relative improvement in supply chains.
Employment in the manufacturing sector showed cautious improvement. The share of firms reporting job gains rose from 50% in May to 64% in June. However, the employment index remains weak. Economists expect the US economy to add around 110,000 jobs in June and the unemployment rate to hold steady at 4.3%.
