On Wednesday (July 15) in early Asian trading, weak US inflation data directly pressured the dollar exchange rate. The dollar index, which fell 0.37% on Tuesday, is currently continuing its weakness, trading around 100.85.

Warsh reiterates his commitment to combating inflation

Federal Reserve Chairman Kevin Warsh pledged on Tuesday to combat stubborn inflation, and his hawkish comments were interpreted by investors as a signal that borrowing costs could "remain high for a longer period." Despite pressure from lawmakers, Warsh dodged questions about whether the Fed would raise interest rates, but reiterated the Fed's price stability goal and downplayed a lower-than-expected inflation report as "just a data point," saying he didn't want to "pick data." "Some people might see the data this morning and say, 'Oh, job done, everything's fine.' That's not my view," Warsh told a hearing before the House Financial Services Committee.

CPI Data and Market Expectations: Ceasefire is a Thing of the Past

Investors had already begun pricing in future interest rate hikes—something President Trump has long opposed. After Tuesday's report of the first monthly decline in consumer prices in six years, Trump cited the report as evidence that his administration was "doing a great job," despite the subsequent renewed war with Iran. Warsh stated that higher mortgage rates "are partly because inflation has been above the Fed's target." "What we can do is make sure people believe that price changes are at a level they don't have to think about or talk about," he said. "This is consistent with lower long-term Treasury yields and more affordable mortgages."

Walsh's position and independence

When asked what he would do if Trump fired him, Warsh said he would “continue to do my job.” He will testify again before the Senate Banking Committee on Wednesday. Warsh’s testimony suggests that despite short-term improvements in inflation, the Federal Reserve remains vigilant about price pressures. He declined to provide clear guidance on future interest rate actions, consistent with its practice of reducing forward guidance, while emphasizing the need to move beyond a single data point to assess the inflation trajectory.

Conclusion: The policy path remains uncertain.

Warsh's key message during Tuesday's testimony was that the Federal Reserve remains committed to its 2% inflation target and will not declare victory over weaker-than-expected data. He avoided specific questions about the timing of interest rate hikes, consistent with his policy style of avoiding forward guidance. The market interpreted this as a signal that interest rates may remain higher for an extended period. With the ongoing US-Iran conflict and tensions in the Strait of Hormuz pushing up oil prices, the inflation outlook still faces significant upside risks. Warsh's further testimony before the Senate Banking Committee on Wednesday may provide more clues about the policy path. (US Dollar Index Daily Chart, Source: EasyForex) At 8:27 AM Beijing time on July 15, the US Dollar Index was at 100.85.