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, US House of
Representatives, Washington DC, 6 March 2024.
* * *
Chairman McHenry, Ranking Member Waters, and other members of the Committee, I
appreciate the opportunity to present the Federal Reserve's semiannual Monetary
Policy Report.
The Federal Reserve remains squarely focused on our dual mandate to promote
maximum employment and stable prices for the American people. The economy has
made considerable progress toward these objectives over the past year.
While inflation remains above the Federal Open Market Committee's (FOMC) objective
of 2 percent, it has eased substantially, and the slowing in inflation has occurred without
a significant increase in unemployment. As labor market tightness has eased and
progress on inflation has continued, the risks to achieving our employment and inflation
goals have been moving into better balance.
Even so, the Committee remains highly attentive to inflation risks and is acutely aware
that high inflation imposes significant hardship, especially on those least able to meet
the higher costs of essentials, like food, housing, and transportation. The FOMC is
strongly committed to returning inflation to its 2 percent objective. Restoring price
stability is essential to achieve a sustained period of strong labor market conditions that
benefit all.
I will review the current economic situation before turning to monetary policy.
Current Economic Situation and Outlook
Economic activity expanded at a strong pace over the past year. For 2023 as a whole,
gross domestic product increased 3.1 percent, bolstered by solid consumer demand
and improving supply conditions. Activity in the housing sector was subdued over the
past year, largely reflecting high mortgage rates. High interest rates also appear to have
been weighing on business fixed investment.
The labor market remains relatively tight, but supply and demand conditions have
continued to come into better balance. Since the middle of last year, payroll job gains
have averaged 239,000 jobs per month, and the unemployment rate has remained near
historical lows, at 3.7 percent. Strong job creation has been accompanied by an
increase in the supply of workers, particularly among individuals aged 25 to 54, and a
continued strong pace of immigration. Job vacancies have declined, and nominal wage
growth has been easing. Although the jobs-to-workers gap has narrowed, labor demand
still exceeds the supply of available workers. The strong labor market over the past two
years has also helped narrow long-standing disparities in employment and earnings
across demographic groups.1
Inflation has eased notably over the past year but remains above the FOMC's
longerrun goal of 2 percent. Total personal consumption expenditures (PCE) prices rose 2.4
percent over the 12 months ending in January. Excluding the volatile food and energy
categories, core PCE prices rose 2.8 percent, a notable slowing from 2022 that was
widespread across both goods and services prices. Longer-term inflation expectations
appear to have remained well anchored, as reflected by a broad range of surveys of
households, businesses, and forecasters, as well as measures from financial markets.
Monetary Policy
After significantly tightening the stance of monetary policy since early 2022, the FOMC
has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent
since its meeting last July. We have also continued to shrink our balance sheet at a
brisk pace and in a predictable manner. Our restrictive stance of monetary policy is
putting downward pressure on economic activity and inflation.
We believe that our policy rate is likely at its peak for this tightening cycle. If the
economy evolves broadly as expected, it will likely be appropriate to begin dialing back
policy restraint at some point this year. But the economic outlook is uncertain, and
ongoing progress toward our 2 percent inflation objective is not assured. Reducing
policy restraint too soon or too much could result in a reversal of progress we have
seen in inflation and ultimately require even tighter policy to get inflation back to 2
percent. At the same time, reducing policy restraint too late or too little could unduly
weaken economic activity and employment. In considering any adjustments to the
target range for the policy rate, we will carefully assess the incoming data, the evolving
outlook, and the balance of risks. The Committee does not expect that it will be
appropriate to reduce the target range until it has gained greater confidence that
inflation is moving sustainably toward 2 percent.
We remain committed to bringing inflation back down to our 2 percent goal and to
keeping longer-term inflation expectations well anchored. Restoring price stability is
essential to set the stage for achieving maximum employment and stable prices over
the longer run.
To conclude, 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.
1
A box in our latest Monetary Policy Report, "Employment and Earnings across
Demographic Groups," discusses differences in labor market outcomes among
segments of the population.