Jerome H Powell: Semiannual Monetary Policy Report to the
Congress
Testimony by Mr Jerome H Powell, Chair of the Board of Governors of the Federal Reserve
System, before the Committee on Financial Services, U.S. House of Representatives,
Washington DC, 2 March 2022.
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Chairwoman Waters, Ranking Member McHenry, and other members of the Committee, I am
pleased to present the Federal Reserve's semiannual Monetary Policy Report.
Before I begin, let me briefly address Russia's attack on Ukraine. The conflict is causing
tremendous hardship for the Ukrainian people. The implications for the U.S. economy are highly
uncertain, and we will be monitoring the situation closely.
At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that
Congress has given us: maximum employment and price stability. We pursue these goals based
solely on data and objective analysis, and we are committed to doing so in a clear and
transparent manner so that the American people and their representatives in Congress
understand our policy actions and can hold us accountable. I will review the current economic
situation before turning to monetary policy.
Current Economic Situation and Outlook
Economic activity expanded at a robust 5 1/2 percent pace last year, reflecting progress on
vaccinations and the reopening of the economy, fiscal and monetary policy support, and the
healthy financial positions of households and businesses. The rapid spread of the Omicron
variant led to some slowing in economic activity early this year, but with cases having declined
sharply since mid-January, the slowdown seems to have been brief.
The labor market is extremely tight. Payroll employment rose by 6.7 million in 2021, and job gains
were robust in January. The unemployment rate declined substantially over the past year and
stood at 4.0 percent in January, reaching the median of Federal Open Market Committee
(FOMC) participants' estimates of its longer-run normal level. The improvements in labor market
conditions have been widespread, including for workers at the lower end of the wage distribution
as well as for African Americans and Hispanics. Labor demand is very strong, and while labor
force participation has ticked up, labor supply remains subdued. As a result, employers are
having difficulties filling job openings, an unprecedented number of workers are quitting to take
new jobs, and wages are rising at their fastest pace in many years.
Inflation increased sharply last year and is now running well above our longer-run objective of 2
percent. Demand is strong, and bottlenecks and supply constraints are limiting how quickly
production can respond. These supply disruptions have been larger and longer lasting than
anticipated, exacerbated by waves of the virus, and price increases are now spreading to a
broader range of goods and services.
Monetary Policy
We understand that high inflation imposes significant hardship, especially on those least able to
meet the higher costs of essentials like food, housing, and transportation. We know that the best
thing we can do to support a strong labor market is to promote a long expansion, and that is only
possible in an environment of price stability.
The Committee will continue to monitor incoming economic data and will adjust the stance of
monetary policy as appropriate to manage risks that could impede the attainment of its goals.
The Committee's assessments will take into account a wide range of information, including labor
market conditions, inflation pressures and inflation expectations, and financial and international
developments. We continue to expect inflation to decline over the course of the year as supply
constraints ease and demand moderates because of the waning effects of fiscal support and the
removal of monetary policy accommodation. But we are attentive to the risks of potential further
upward pressure on inflation expectations and inflation itself from a number of factors. We will
use our policy tools as appropriate to prevent higher inflation from becoming entrenched while
promoting a sustainable expansion and a strong labor market.
Our monetary policy has been adapting to the evolving economic environment, and it will
continue to do so. We have phased out our net asset purchases. With inflation well above 2
percent and a strong labor market, we expect it will be appropriate to raise the target range for
the federal funds rate at our meeting later this month.
The process of removing policy accommodation in current circumstances will involve both
increases in the target range of the federal funds rate and reduction in the size of the Federal
Reserve's balance sheet. As the FOMC noted in January, the federal funds rate is our primary
means of adjusting the stance of monetary policy. Reducing our balance sheet will commence
after the process of raising interest rates has begun, and will proceed in a predictable manner
primarily through adjustments to reinvestments.
The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the
sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in
this environment requires a recognition that the economy evolves in unexpected ways. We will
need to be nimble in responding to incoming data and the evolving outlook.
Maintaining the trust and confidence of the public is essential to our work. Last month, the
Federal Reserve finalized a comprehensive set of new ethics rules to substantially strengthen
the investment restrictions for senior Federal Reserve officials. These new rules will guard
against even the appearance of any conflict of interest. They are tough and best in class in
government, here and around the world.
We understand that our actions affect communities, families, and businesses across the
country. Everything we do is in service to our public mission. We at the Federal Reserve will do
everything we can to achieve our maximum-employment and price-stability goals.
Thank you. I am happy to take your questions.