Federal Reserve Chair Kevin Warsh told members of Congress on Tuesday that the US central bank remains fully committed to restoring price stability, stressing that the Federal Reserve will continue to operate within its statutory mandate and will not become involved in political matters. He also pledged greater transparency regarding the work of the Fed's internal task forces.

Warsh said interest rates and the balance sheet will remain the Federal Reserve's primary monetary policy tools, emphasizing that the balance sheet is an integral part of monetary policy rather than merely an operational instrument. He added that the responsibilities of several task forces, including those focused on the balance sheet and communications, will overlap, but stressed that their work will not be conducted behind closed doors. Their findings will be shared regularly with members of Congress through the end of the year.

The Fed chair also welcomed the central bank's decision to abandon its flexible inflation-targeting framework, arguing that allowing inflation to overshoot its target ultimately resulted in much stronger price pressures than policymakers had anticipated. He reiterated that the Federal Reserve is "capable of restoring price stability, and it will do so."

Warsh said the US economy remains strong and financial markets are functioning well, although he acknowledged that conditions in the housing sector appear more uneven. He noted that mortgage rates are now higher than in previous years, partly because inflation remains above the Federal Reserve's 2% target. However, he avoided describing current mortgage rates as excessively high, saying only that they are above earlier levels.

On the labor market, Warsh said conditions remain broadly stable, with job creation keeping pace with labor force growth. He added that the unemployment rate has remained low and largely unchanged over the past year, while layoffs have continued to decline.

The Federal Reserve chair declined to comment on questions related to the US president and the independence of regulatory agencies. He also refused to express an opinion on whether the president or other executive branch officials should be allowed to own companies or assets in industries they oversee as regulators.

US consumer prices posted their largest monthly decline in more than six years in June, as a sharp drop in energy costs provided temporary relief from the inflationary pressures seen earlier this year, according to data released Tuesday by the US Bureau of Labor Statistics.

The Consumer Price Index (CPI), a broad measure of goods and services prices across the US economy, came in below market expectations across the board. On a seasonally adjusted basis, the index fell 0.4% from the previous month, bringing the annual inflation rate down to 3.5%.

Economists surveyed by Dow Jones had expected a monthly decline of 0.2% and an annual inflation rate of 3.8%, following May's reading of 4.2%. The monthly decline in headline inflation was the largest since April 2020.

Energy and services drive inflation slowdown

Core inflation, which excludes food and energy prices, was unchanged on a monthly basis, bringing the annual rate to 2.6%.

Markets had expected core CPI to rise 0.2% in June, with the annual rate easing to 2.9% from 2.9% in May.

The energy index fell 5.7% during June, marking its largest monthly decline since April 2020. Despite the monthly drop, energy prices remained 15.7% higher than a year earlier, driven by a 26.7% annual increase in gasoline prices.

Meanwhile, both gasoline and fuel oil prices declined by more than 9% during the month.

Services inflation, a key measure closely monitored by Federal Reserve officials as an indicator of longer-term price trends, also eased noticeably. Services prices excluding energy were unchanged, shelter costs rose just 0.1%, and transportation services fell 0.3%.

Food prices increased 0.2%, new vehicle prices were unchanged, while used cars and trucks fell 0.2%. Apparel prices declined 0.6%, a category that is particularly sensitive to energy costs and tariffs.

Markets scale back tightening expectations despite continued rate hike outlook

Following the release of the data, US stock futures moved higher, while Treasury yields fell sharply.

Although markets continue to expect the Federal Reserve to raise interest rates at its September meeting, the probability of a rate hike declined to 63%, down from more than 75% a day earlier, according to CME Group's FedWatch tool.

The Federal Reserve's benchmark overnight interest rate currently remains in a target range of 3.50%-3.75%.

Heather Long, Chief Economist at Navy Federal Credit Union, said June finally brought some welcome relief on inflation, giving the Federal Reserve more room to wait and assess incoming data. However, she warned that the improvement could prove temporary if the conflict with Iran intensifies again, adding that it remains too early to conclude that the inflation story has fully turned.

While the report provided encouraging news for financial markets, it is unlikely to be sufficient to convince Federal Reserve officials to begin cutting interest rates anytime soon, with markets still broadly expecting a rate hike in September.

Federal Reserve Governor Christopher Waller said on Monday that several more months of favorable inflation readings would be needed before he would be convinced inflation is firmly moving back toward the central bank's 2% target.

The report followed a series of hawkish remarks from Federal Reserve officials on inflation. Following their June meeting, policymakers reaffirmed in their statement that the Federal Open Market Committee remains committed to achieving price stability.

New Federal Reserve Chair Kevin Warsh has also made fighting inflation a central theme since taking office in May, despite previously expressing confidence that interest rates could eventually be lowered.

In prepared remarks for his congressional testimony on Tuesday, Warsh said, "The Federal Reserve's first objective is to achieve the right monetary policy, or get as close to it as possible. That is our clear and unwavering goal, and it remains our guiding principle. If we succeed in setting policy correctly—and we will—the inflation surge of the past five years will become a thing of the past."

However, the recent slowdown in inflation could prove temporary depending on developments in the Middle East.

A sharp decline in oil prices during June, following easing regional tensions, helped slow inflation. But US President Donald Trump declared last week that the ceasefire with Iran had ended after both sides resumed military attacks, sending oil prices sharply higher on Monday, with gains extending into Tuesday.

Ryan Weldon, Chief Investment Officer at IFM Investors, said the longer the conflict lasts, the greater the likelihood that the Federal Reserve will have to raise interest rates, fulfilling Kevin Warsh's pledge during his first meeting as Fed chair to restore price stability.

Bitcoin remained under selling pressure on Tuesday, trading around $62,600 after falling more than 2% in the previous session, as investors continued to pull back from risk assets amid escalating tensions between the United States and Iran.

Market data also pointed to continued weakness in institutional demand after spot Bitcoin exchange-traded funds (ETFs) recorded net outflows of more than $424.66 million on Monday, ending the modest inflow streak that totaled $197.4 million last week.

Markets await US inflation data and Fed chair's testimony

Investors are focused on the release of June US consumer price index data, which is expected to show slower headline inflation due to lower fuel prices, while core inflation will remain the key measure for assessing underlying price pressures.

Markets are also awaiting Federal Reserve Chair Kevin Warsh's testimony before the House Financial Services Committee, which could provide fresh clues on the future path of US interest rates and have a direct impact on the US dollar and risk-sensitive assets, including cryptocurrencies.

Middle East tensions weigh on risk appetite

Investor sentiment deteriorated after military tensions between the United States and Iran intensified. US forces launched a third consecutive night of strikes on Iranian targets, while Iran's Revolutionary Guard responded by attacking US positions in the region. Two Emirati oil tankers were also hit by Iranian missiles while transiting the Strait of Hormuz.

The disruption in the strait and growing concerns over global energy supplies pushed WTI crude above $80 a barrel, while Bitcoin briefly fell below $62,000 before stabilizing near $62,600.

Analysts at Bitfinex said this week's US inflation report will be the market's most important catalyst. They noted that continued moderation in inflation alongside stable interest rates would support Bitcoin and other digital assets, while persistently high energy prices or stubborn core inflation could increase the likelihood of tighter monetary policy and weigh further on cryptocurrencies.

Institutional demand remains weak

Data from SoSoValue showed that spot Bitcoin ETFs recorded net outflows of $424.66 million on Monday, highlighting continued weakness in institutional demand. Analysts believe that if these outflows continue, Bitcoin could face a deeper corrective move in the coming days.

CLARITY Act could be this week's key catalyst

The US House of Representatives is scheduled to hold a hearing on Friday regarding the CLARITY Act as lawmakers continue efforts to establish a comprehensive regulatory framework for the digital asset industry.

US President Donald Trump has urged the Senate to move quickly on the legislation, arguing that it is essential for maintaining US leadership in both digital assets and artificial intelligence amid growing competition from China.

The bill was approved by the House of Representatives on July 17, 2025, with a bipartisan vote of 294 to 134. It also passed the Senate Banking Committee in May 2026 and is now awaiting a final vote.

The legislation aims to clarify the regulatory responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), granting the CFTC oversight of the spot cryptocurrency market. Many market participants view the proposal as a positive step that could support the industry's long-term growth.

Friday's hearing is expected to play a key role in reconciling the House and Senate versions of the bill before Congress begins its recess on August 7, potentially determining whether the legislation can be passed this year.

Oil prices climbed to their highest levels in four weeks on Tuesday after the United States reinstated a naval blockade on Iran, while renewed military confrontations between Washington and Tehran fueled concerns over energy flows through the Strait of Hormuz.

Brent crude futures rose $3.17, or 3.81%, to $86.47 a barrel by 09:41 GMT, their highest level since June 12. US West Texas Intermediate (WTI) crude gained $2.15, or 2.75%, to $80.29 a barrel, its highest level since June 16, the day before the United States and Iran signed a memorandum of understanding to halt the conflict.

Soni Kumari, analyst at ANZ, said markets are repricing the risk of the US-Iran agreement unraveling only weeks after it was signed. She added that while the peak of the military escalation may have passed, continued disruptions could keep oil prices in the $85-$90 per barrel range.

Growing risks to energy supplies

Tensions escalated this week after US President Donald Trump announced the reinstatement of a naval blockade on Iranian shipping and proposed imposing a 20% transit fee on cargo passing through the Strait of Hormuz in exchange for security protection along the waterway.

The Strait of Hormuz is one of the world's most critical energy chokepoints, carrying around 20% of global daily oil and liquefied natural gas supplies before the conflict erupted.

In a separate development, the UAE Ministry of Defence announced that an Indian sailor was killed and eight others were injured after two Emirati oil tankers were struck by Iranian cruise missiles while transiting the strait.

Shipping data also showed that the number of oil tankers passing through the Strait of Hormuz fell to its lowest level in two months over the past day.

Concerns over a prolonged crisis

Citi said in a research note that the likelihood of Iran abandoning its memorandum of understanding with the United States until after the US midterm elections has increased, a scenario that could keep oil prices elevated for longer.

Meanwhile, Iranian Oil Minister Mohsen Paknejad said the country's oil exports continue to flow normally despite the expiration of the temporary US sanctions waiver last week.

Additional geopolitical flashpoints

In Yemen, the Houthi movement said it had launched missiles toward Saudi Arabia, accusing the kingdom of striking an airport under its control.

Simon Wong, portfolio manager at Gabelli Funds, said an expansion of Houthi attacks to include Saudi oil facilities along the Red Sea could create additional uncertainty for regional crude supplies.

In another development, the Ukrainian military announced overnight strikes on two oil refineries in Russia's Bashkortostan and Krasnodar regions, a move that could add further pressure to global energy supplies.