The new chairman of the Federal Reserve, Powell, faces a tough test from Congress: Will the strategy of "less talk, more action" work? Inflation and independence are the focus of questioning.

Notice that in Kevin Wash's first month as Fed chairman, he has already clearly expressed his views: less is more when explaining his views on the economy. In fact, Wash has remained mostly silent on relevant market issues. But this week, as Wash testifies for the first time as Fed chairman before Congress, he will face a group of lawmakers seeking answers. This hearing is mandated by law for the Fed chairman to attend twice a year for the semi-annual monetary policy report hearing. The Fed already submitted this official report to Congress last Friday (July 10), in which policymakers reiterate the Fed's firm stance - "the committee will achieve price stability" and vow to push the inflation rate back to the 2% target level. Congress will probe the anti-inflation policy, Wash needs to demonstrate the independence of the Fed Mark Spindel, CIO of Potomac River Capital, said, "Wash must respond to his bosses on Capitol Hill." Jonathan Pingle, chief US economist at UBS, said Wash is unlikely to argue that the Fed's approach to forecasting risks is not up for discussion. He added that lawmakers will want Wash to explain his plan to lower the inflation rate to the Fed's 2% target. This is the "fundamental reason" for summoning Wash to testify before the committee. Wash will attend the House Financial Services Committee hearing at 10 a.m. Eastern Time on Tuesday and the Senate Banking Committee hearing the next morning. Ironically, the lawmakers who will question Wash are the same people who confirmed his appointment as Fed chairman in May this year. At that time, Wash received a friendly reception from Republicans in the confirmation hearing, but was rigorously interrogated by Democratic lawmakers about whether he would become a puppet of Trump. This week, the political tug-of-war over the independence of the Fed is set to play out once again. Facing strong accusations from the public as Trump's spokesperson, Wash recently issued a stern statement: "The Fed has maintained its independence for a long time, and we will continue to be an independent central bank at this moment, you won't see any changes." But the market is more concerned about his policy actions. Inflation pressure remains high, internal dissent within the Fed on raising interest rates Data shows that as Wash's testimony is released, the Fed's rate-setting committee has significantly shifted towards the possibility of raising interest rates. In June this year, nine Fed officials predicted a rate hike this year, with six of them expecting more than one hike. In the Fed's recently released semi-annual monetary policy report, officials revealed a significant fact: due to high inflation, according to several commonly used numerical policy rules models within the Fed, the current federal funds rate (3.5% to 3.75% range) is significantly too low, and the models are calling for higher interest rate levels. Currently, the Fed's favorite inflation indicator, the May core PCE price index, is still up 3.4% year-on-year, far above the 2% target. According to the latest data from the CME's FedWatch tool, the financial markets are frantically repricing, with the market now widely betting that the Fed will raise rates at least once before the end of the year, and even believing that the probability of a surprise rate hike at the late July meeting is rising to one-third (about 33%). According to the market probability tracking tool of the Atlanta Fed, the market believes that there is a 70% chance of a rate hike before September. Claudia Sam, chief economist at New Century Advisors and former Fed associate, believes that some Fed officials are losing patience and are ready to lower inflation by raising interest rates. However, there is another camp of Fed officials who believe that the central bank can be patient, observe whether inflation will decrease slightly before taking action. Especially considering the recent global fuel supply crisis sparked by the US-Iran conflict, which has put pressure on US inflation. In the Fed's report last week, policymakers acknowledged that, in addition to the surge in energy prices due to geopolitical conflicts, tariff barriers pushing up prices of goods, and the crazy demand for components such as semiconductors in AI data centers, have also been the driving forces behind the high inflation. Rejecting forward guidance, Wash tries to replicate the paths of Volcker and Greenspan During his campaign for the position, Wash advocated for rate cuts through television and other channels, which was also the position favored by the White House at the time. However, as chairman, he firmly stated that he would not make any pre-judgments on the outcome of the July rate meeting. At the Central Bank Forum in Sintra, Portugal in early July, he showed a strong defensive stance in the face of global market speculation about the policy path, directly refusing to provide any forward guidance and saying, "I won't give forward guidance because we are having a meeting in four weeks. I hope we can close the door in that room and have a fierce 'family fight' and debate, but right now I have nothing to say." In this regard, he clearly stated that he is trying to emulate former Fed heads Paul Volcker and Alan Greenspan, who both tried to speak as little as possible in public. This attitude has made Congress unhappy. Both of these Fed chairs have been immortalized in history for their epic battles with the legislature. When Volcker - who served so long ago that smoking was allowed in the hearing room back then - didn't like a question, he would disappear into a cloud of cigar smoke. Greenspan, on the other hand, is remembered for telling a congressman, "If you think you understood what I said, then you definitely misunderstood my meaning." Spindel said the testimonies of these chairs were similar to former Secretary of State Henry Kissinger asking reporters if they had any questions about the well-prepared answers he had for them. Spindel said that Wash's approach is likely to face resistance, as he does not have the same prestige as Volcker or Greenspan when he testifies for the first time. "When he took office, he did not have the rich qualifications of Paul Volcker or Alan Greenspan with a long history of empirical analysis." Furthermore, lawmakers are preparing to ask him probing questions about whether "AI is the antidote or poison for inflation." Wash expressed optimism when he took office as Fed chairman, believing that AI could reduce inflation by increasing productivity, allowing the central bank to enter a rate-cutting channel. But last week when questioned, he apparently could not deny the fact that AI data center construction is driving demand crazily, so he could only vaguely say that the inflation effect of AI is currently manifesting on the "demand side" of the economy, "but I am confident that at some point in the future, we will see its effects (lowering inflation) on the 'supply side.'" CPI data coincides with the testimony, Wash faces political and economic pressures Adding insult to injury, Wash's testimony on Tuesday coincides with the release of the US June CPI (Consumer Price Index) data. Although the market expects the year-on-year growth rate of CPI in June to slightly decrease from 4.2% in May to 3.8% due to the previous oil price downturn caused by Trump's actions, and the core CPI to drop to 2.8%, this still does not alleviate overall inflation anxiety. On the following Wednesday, the US will also release the PPI (Producer Price Index) data. This series of hardcore data bombardment will directly put Wash in a difficult position. In addition, Democratic lawmakers on Capitol Hill view Wash as a close ally of the White House, despite the Fed's mandate to operate independently. They are unlikely to go easy on him as they perceive the opportunity to connect President Trump and his appointed Fed chairman with high inflation data, which could help them win control of at least one chamber of Congress in the November elections. Wash may try to evade questions, as he did in his first press conference as chairman in June, telling lawmakers that he had set up five working groups to help him achieve "institutional change" at the central bank. It was recently disclosed that these five working groups will redefine the Fed comprehensively, focusing on: the Fed's public communication mechanism, asset-liability policy, the quality of existing economic data sources, the central bank's inflation review mechanism, and how artificial intelligence (AI) will impact future productivity and employment. Spindel said that these stalling tactics may not work on Capitol Hill this week, "Congress has ways to make you talk."