US Federal Reserve (Fed) Chair Kevin Warsh delivered key messages on inflation and monetary policy at the European Central Bank (ECB) annual forum held in Sintra, Portugal.
Warsh noted that inflation risks have declined in recent weeks, but stressed that the Fed must continue its efforts to return to the 2 percent target. "Monetary policy decisions will remain data-driven, and we will not provide advance guidance on interest rates," he said.
Warsh stated that the drop in energy prices following the memorandum of understanding signed between the US and Iran helped ease inflationary pressures, but inflation was still somewhat above pre-war levels.
Touching on the Fed's independence, Warsh said, "Despite political pressure for rate cuts, the Fed's independence will not change, and 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 benefiting most from this technological revolution. He noted that for now, the impact was concentrated in capital spending 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 is maintaining its stable course."
Sharp rise in gold prices
During Warsh's remarks, spot gold prices rose 2.1 percent to $4,089.49. In the previous session, gold had hit its lowest level since November, and had posted its worst quarterly performance since 2013 with a loss of nearly 14 percent in the second quarter. Gold futures contracts rose to $4,036.95.
Though the decline in oil prices following the US-Iran deal somewhat eased inflation concerns, 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 data from the Institute for Supply Management (ISM), the manufacturing PMI index fell from 54 to 53.3 in June, but remained above the growth threshold of 50. The sector thus recorded six consecutive months of expansion.
The slowdown was partly due to the diminishing impact of precautionary orders companies placed during the US-Iran war to guard against supply disruptions. On the other hand, AI spending continued to support manufacturing, especially in areas such as chips, electrical equipment, machinery, and computer products.
Input costs remained high, though they eased from the previous month. 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 relative improvement to supply chains.
Employment in the manufacturing sector showed cautious improvement. The share of firms reporting employment growth rose from 50 percent in May to 64 percent in June. However, the employment index remained weak. Economists expect around 110,000 new jobs added to the US economy in June, with the unemployment rate holding steady at 4.3 percent.
