Washington, D.C. – In a testimony before the Committee on Financial Services, U.S. House of Representatives, Federal Reserve Chair Jerome H. Powell presented the Federal Reserve’s semiannual Monetary Policy Report. The testimony focused on the current economic situation, outlook, and the Federal Reserve’s approach to monetary policy.
Chairman Powell emphasized the Federal Reserve’s commitment to its dual mandate of promoting maximum employment and stable prices for the American people. Acknowledging the challenges posed by high inflation, Powell assured that the Federal Reserve remains strongly committed to bringing inflation back down to the 2 percent goal, as price stability is essential for a well-functioning economy and the prosperity of all.
In reviewing the current economic situation, Powell noted that while the U.S. economy experienced a significant slowdown last year, recent indicators suggest a modest expansion in economic activity. Consumer spending has picked up, but the housing sector remains weak due to higher mortgage rates. Business fixed investment has been affected by higher interest rates and slower output growth.
Powell highlighted the tight labor market conditions, stating that job gains have averaged a robust 314,000 per month in the first five months of the year. The unemployment rate, although slightly increased in May, remains low at 3.7 percent. The labor force participation rate has shown improvement, and nominal wage growth has eased, indicating a better balance between labor supply and demand. However, labor demand still exceeds the available workforce.
Regarding inflation, Powell acknowledged that it remains well above the Federal Reserve’s longer-run goal of 2 percent. Over the past year, personal consumption expenditures (PCE) prices rose 4.4 percent, and core PCE prices, excluding food and energy, rose 4.7 percent. While inflation has moderated since last year, inflation pressures remain high, and significant efforts are required to bring it back to the target.
In terms of monetary policy, Powell highlighted that the Federal Open Market Committee (FOMC) has tightened the stance of monetary policy significantly. The policy interest rate has been raised by 5 percentage points since early last year, and securities holdings have been reduced. The effects of policy tightening are being observed in interest rate-sensitive sectors of the economy, but it will take time for the full impact to be realized, especially in terms of inflation.
Powell mentioned that the economy faces headwinds from tighter credit conditions for households and businesses, which are likely to affect economic activity, hiring, and inflation. Considering the progress made in tightening policy, the FOMC decided to maintain the target range for the federal funds rate and to continue reducing securities holdings. Most FOMC participants anticipate further interest rate increases by the end of the year. However, the Committee judged it prudent to hold the target range steady at this time to assess additional information and its implications for monetary policy.
Chair Powell assured that the Federal Reserve remains committed to bringing inflation back down to the 2 percent goal and keeping longer-term inflation expectations anchored. Achieving price stability may require a period of below-trend growth and some softening of labor market conditions. The Federal Reserve will continue to make decisions based on incoming data, their implications for the outlook, and the balance of risks.
In his concluding remarks, Chair Powell addressed the condition of the banking sector, affirming that it is sound and resilient. The Federal Reserve is committed to addressing vulnerabilities and ensuring appropriate rules and supervisory practices for banks of all sizes to strengthen the banking system.
Chair Jerome H. Powell’s testimony emphasized the Federal Reserve’s dedication to fulfilling its public mission and striving for maximum employment and price stability in service to the American people.
https://www.federalreserve.gov/newsevents/testimony/powell20230621a.htm