On July 15, 2026, the Federal Reserve's semi-annual monetary policy report was delivered to Congress. In the hearing room in Washington, Federal Reserve Chair Waller faced questions from senators, while at nearly the same time, New York Fed President Williams gave a public speech in another city— the same set of monetary policies presented in two different tones. Waller first revealed a detail not in the memo: he would completely sell all personal assets acquired before he became chair, converting his holdings into cash equivalents and short-term U.S. Treasury bonds. This choice far exceeded the requirements of the rules and was instinctively interpreted by the audience as a defensive posture. His subsequent statements sounded like an attempt to provide macro reasons for this "liquidation": he reminded that recent inflation data does not fully reflect underlying pressures and predicted that in the next 12 months, artificial intelligence would raise observable price levels, and how AI affects inflation and employment depends on the Federal Reserve's policy response. Meanwhile, Williams, in his public speech, acknowledged that around 4% inflation is undoubtedly high but emphasized that there are signs indicating inflation may have peaked, believing the current policy stance is in a "good position." Thus, in two public speeches on the same day, one chair sent out a "cash is king" signal to the market with his personal asset structure, while the other suggested that the inflation peak has passed and further tightening is unnecessary, clearly laying out the internal differences within the Federal Reserve regarding the direction of inflation and the effect of AI on price increases.
Chair Liquidates Assets to Hold Short-Dated Bonds: A Public Hedge
In this semi-annual monetary policy report hearing, Waller did not limit his remarks to abstract discussions on inflation and artificial intelligence but laid his asset calculations on the table. According to his statement, he would completely sell all personal assets acquired before becoming chair of the Federal Reserve, converting all proceeds into cash equivalents and short-term U.S. Treasury bonds, rather than continuing to hold any form of high-risk positions. This was not a passive compliance move but an active asset "liquidation": he condensed future uncertainties into two choices—cash in hand and short-term U.S. bonds that can be rolled over at any time. The hearing room quieted, and before the lawmakers could commence their inquiries, market participants began calculating in their minds what exactly the new chair was hedging against.
According to the current ethical protocols, the chair does not need to be this thorough. The system requires avoiding explicit conflicts of interest and accepting disclosure and scrutiny, not selling off all past assets, leaving a pool of safe assets like cash and short-term bonds that are hardly linked directly to policy outcomes. Precisely because this goes beyond the minimum threshold, some analysts view this disposal as a public statement of hedging: he is unwilling to expose his wealth to the volatility of future interest rate paths and long-term asset pricing. The market has historically seen the personal asset arrangements of the Federal Reserve chair as a side signal—when the chair chooses to hold short-term Treasury bonds instead of betting on more extended returns, investors naturally associate it with his discomfort with long-term interest rates and a cautious assessment of future inflation and risk appetite. Thus, while Waller verbally stated that AI might drive up prices in the next 12 months, his actions yielded an answer of "cash and short bonds." This consistency in defensive posture inevitably compounded in the market into a stronger expectation that the highest echelons of the Federal Reserve's concerns about long-term risks do not merely reside in models and reports but have already manifested in their own asset choices.
Inflation Not Fully Captured by Data: Waller's Hidden Concerns
In the Senate hearing, Waller transitioned the topic from his asset arrangements back to inflation. He first acknowledged the recent data indicating a moderation in price increases but quickly added, "Recent inflation data does not fully reflect underlying inflationary pressures." This was not a critique of statistical measures but a denial of the narrative—under New York Fed President John Williams' guidance, current inflation is around 4%, "undoubtedly too high," but there are signs indicating it may have peaked, and the monetary policy stance is "in a good position." Waller clearly did not want to adopt this narrative as the final word; he emphasized those pressures not yet reflected in reports but already fermenting in corporate decisions and asset prices.
The most prominent variable is undoubtedly artificial intelligence. Waller, in this instance, was the first to systematically bring AI into the inflation discussion framework, predicting that artificial intelligence would elevate observable price levels in the next 12 months and noted that "whether artificial intelligence causes inflation depends on the Federal Reserve's policy and response." In his narrative, AI investment is beneficial for employment in the short term and a new job creator in the long term, but this "upside" does not automatically equate to a moderate price environment: if policy lets demand and asset prices rise unchecked, technological advances could evolve into a new source of inflation. The hearing itself was part of the semi-annual monetary policy report, focusing on inflation and policy outlook, making this somewhat hawkish statement particularly noticeable and alerting the market that, in Waller's framework, AI is not just a growth story but a serious inflation risk that must be addressed with interest rates and balance sheets.
AI Drives Up Prices Yet Benefits Employment: How to Ground the Paradox
During the Senate questioning, Waller provided a blunt assessment: "It is expected that artificial intelligence will raise observable price levels in the next 12 months." This was a cold description of reality—capital expenditures on computing power, data, talent, and related hardware will statistically raise prices. He immediately added an almost contradictory assessment: "In the short term, AI investment is beneficial for employment... it is a long-term job creator." In the same venue, AI is portrayed as both a technological shock raising prices and an engine of growth that enables more people to have jobs and stimulates business expansion; this dual appraisal itself breaks with the traditional macro narrative habit of "either protect prices or protect employment."
Waller deliberately emphasized, "Whether artificial intelligence will cause inflation depends on the Federal Reserve's policy and response," shifting the focus from technology itself back to policy choices: if monetary conditions on the demand side are relaxed in line with the investment boom, then the combination of "rising prices and improving employment" will present as persistent inflation in official statistics; conversely, if demand is constrained through interest rates and balance sheets, it could lead to the structural outcome of resilient employment but suppressed price pressures. Because of this, the cross-impact of artificial intelligence on inflation and employment has become a new topic of internal discussion within the Federal Reserve. Waller's formal introduction of the concept of "AI inflation and employment" during the congressional hearing essentially inserts a new variable into the official narrative: future policy debates will no longer simply argue about the path of inflation, but how to selectively retain it as a "long-term job creator" while accepting technology-driven price disruptions.
4% Still Too High or a Signal of Peak: Williams' Different Answer
On the same day that Waller sent cautious and even defensive signals in the congressional hearing, New York Fed President John Williams provided a different tone in his public speech: he acknowledged that the current inflation level of about 4% is "undoubtedly too high," but added that there are signs inflation may have peaked. For the market, this presents an entirely different narrative logic: both facing elevated prices, Waller emphasized that "data does not reflect all pressures," implying that latent risks are still accumulating, while Williams seems more to convey that the peak has been crossed, and while the current height is uncomfortable, it may not be still rising.
More critically, Williams characterized the current monetary policy stance as being in a "good position," a statement interpreted as not being in a hurry to make significant adjustments to policy—neither rushing to tighten again nor quickly relaxing. Thus, on this same day, the Federal Reserve internally exhibited two intertwined narratives: on one side, the chair personally arranged his assets as "holding cash and short-term Treasury bonds," coupled with reminders about AI pushing inflation, constructing a defensive story emphasizing risk remains unpriced; on the other side, the New York Fed emphasized signs of potential inflation peak and the policy has largely been positioned correctly, providing rationale for "maintaining the status quo and awaiting data." Under this narrative divergence, the market is forced to oscillate between two paths: whether to believe inflation still has invisible upward pressure or to more readily accept the version of "high plateau, gradually alleviating," with the differences in interpretations turning into genuine divergences among participants regarding future interest rates and risk preferences.
From Assets to Algorithms: The Federal Reserve's Next Game
By juxtaposing Waller's liquidation actions and vigilance regarding AI inflation with Williams' assertion that "inflation may have peaked," what emerges within the Federal Reserve is an undefined divergence: the chair himself, through asset disposals exceeding ethical protocol requirements, has withdrawn from long-term risk assets and turned to cash equivalents and short-term Treasury bonds, releasing a somewhat defensive personal signal in the venue of the semi-annual monetary policy report hearing; in the same venue, he highlighted that recent data does not fully reflect inflationary pressures, predicting that in the coming year AI will raise observable prices, and that inflation outcomes depend on the Federal Reserve's policy responses. In contrast, Williams, who oversees the New York Fed, publicly emphasized that the current inflation around 4% is indeed too high, but signs indicate it may have peaked, and he believes existing policy stances are "in a good position," providing justification for maintaining the interest rate range and waiting for more data. Thus, the "cash is king" asset story and the "AI driving up prices" policy narrative jointly shape the market's imagination: on one side, an expectation of maintained high rates and the necessity for risk assets to offer higher risk compensation; on the other side, a bet on inflation remaining at high levels, with policy only making minor adjustments not aggressive ones. As artificial intelligence was officially incorporated into the discussion of congressional hearings for the first time, the Federal Reserve acknowledges that its impact on inflation and employment is a new internal topic, the real focus of future games will no longer simply be the rate point at the next meeting but a more challenging variable—how the Federal Reserve will rewrite its policy narrative amid AI gradually changing price structures and employment landscapes, while the market recalibrates the relative value of risk and cash under this new narrative.
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