Fed Chair Powell’s Testimony on Semiannual Monetary Policy Report to Congress

Chairman Brown, Ranking Member Scott, and other members of the Committee, I appreciate the opportunity to present the Federal Reserve’s semiannual report. Monetary Policy Report.

The Federal Reserve remains fully focused on its dual mission of promoting maximum employment and stable prices for the American people. Over the past two years, the economy has made significant progress toward the Fed’s goal of 2 percent inflation, and labor market conditions have slowed but remained strong. In light of these developments, the risks to our employment and inflation goals are now better balanced.

I will review the current economic situation before turning to monetary policy.

Current economic situation and outlook
Recent indicators suggest that the US economy continues to expand at a solid pace. GDP growth appears to have slowed in the first half of this year after an impressive second half of last year. However, private domestic demand remains robust, with slower but still robust increases in consumer spending. We have also seen moderate growth in capital spending and a pickup in residential investment so far this year. Improved supply conditions have supported resilient demand and the strong performance of the US economy over the past year.

In the labor market, a broad range of indicators suggest that conditions are back to where they were on the eve of the pandemic: robust, but not feverish. The unemployment rate has edged up but remains at a low 4.1% in June. Job gains averaged 222,000 per month in the first half of the year. Strong job creation over the past two years has been accompanied by an increase in the supply of workers, reflecting rising labor force participation among people ages 25 to 54 and a strong pace of immigration. As a result, the gap between jobs and workers has narrowed significantly from its peak and is now slightly above its 2019 level. Nominal wage growth has slowed over the past year. The strong labor market has helped narrow long-standing gaps in employment and earnings across demographic groups.¹

Inflation has eased markedly over the past two years but remains above the Committee’s longer-term objective of 2 percent. Total PCE prices rose 2.6 percent over the 12 months through May. Core PCE prices, which exclude volatile food and energy, rose 2.6 percent. After making no progress toward our 2 percent inflation objective in the first part of the year, the latest monthly readings have shown modest progress. Longer-term inflation expectations appear to remain firmly anchored, as reflected in a wide range of surveys of households, businesses, and forecasters, as well as measures of financial markets.

Monetary policy
Our monetary policy actions are guided by our dual mandate to promote maximum employment and price stability for the American people. In support of these objectives, the Committee has maintained the target range for the federal funds rate at 5.5 percent to 5.5 percent since last July, after tightening the stance of monetary policy significantly over the previous year and a half. We have also continued to reduce our holdings of securities. At our May meeting, we decided to slow the pace of balance sheet flows beginning in June, consistent with our previously announced plans. Our restrictive monetary policy stance helps balance supply and demand conditions and put downward pressure on inflation.

The Committee stated that we do not expect it to be appropriate to lower the target range for the federal funds rate until we have greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence. However, the most recent inflation readings have shown some modest progress, and further good data should bolster our confidence that inflation is moving sustainably toward 2 percent.

We continue to make decisions at each meeting on a case-by-case basis. We recognize that easing policy too soon or too much could derail or even reverse the progress we have seen on inflation. At the same time, given the progress we have made in reducing inflation and cooling the labor market over the past two years, higher inflation is not the only risk we face. Reducing policy too soon or too little could unduly weaken economic activity and employment. In considering adjustments to the target range for the federal funds rate, the Committee will continue its practice of carefully assessing incoming data and their implications for the evolving outlook, the balance of risks, and the appropriate path of monetary policy.

Congress has entrusted the Federal Reserve with the operational independence necessary to take a longer-term view in pursuing our dual mission of maximum employment and stable prices. We remain committed to reducing inflation to our 2 percent goal and preserving inflation expectations over the longer term. Restoring price stability is essential to achieving maximum employment and stable prices over the long term. Our success in achieving these goals matters to all Americans.

I would like to conclude by emphasizing that we recognize that our actions impact communities, families, and businesses across the country. Everything we do serves our common mission.

Thank you, I am happy to answer your questions.

1. Box in our latest releases Monetary Policy Report“Employment and Earnings Across Demographic Groups,” discusses differences in labor market outcomes between population segments. Back to text