Jerome H Powell: Semi-annual Monetary Policy Report to the
Congress
Speech 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, 14 July 2021.
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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.
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. Today I will review the current economic situation before turning to
monetary policy.
Current Economic Situation and Outlook
Over the first half of 2021, ongoing vaccinations have led to a reopening of the economy and
strong economic growth, supported by accommodative monetary and fiscal policy. Real gross
domestic product this year appears to be on track to post its fastest rate of increase in decades.
Household spending is rising at an especially rapid pace, boosted by strong fiscal support,
accommodative financial conditions, and the reopening of the economy. Housing demand
remains very strong, and overall business investment is increasing at a solid pace. As described
in the Monetary Policy Report, supply constraints have been restraining activity in some
industries, most notably in the motor vehicle industry, where the worldwide shortage of
semiconductors has sharply curtailed production so far this year.
Conditions in the labor market have continued to improve, but there is still a long way to go. Labor
demand appears to be very strong; job openings are at a record high, hiring is robust, and many
workers are leaving their current jobs to search for better ones. Indeed, employers added 1.7
million workers from April through June. However, the unemployment rate remained elevated in
June at 5.9 percent, and this figure understates the shortfall in employment, particularly as
participation in the labor market has not moved up from the low rates that have prevailed for most
of the past year. Job gains should be strong in coming months as public health conditions
continue to improve and as some of the other pandemic-related factors currently weighing them
down diminish.
As discussed in the Monetary Policy Report, the pandemic-induced declines in employment last
year were largest for workers with lower wages and for African Americans and Hispanics.
Despite substantial improvements for all racial and ethnic groups, the hardest-hit groups still
have the most ground left to regain.
Inflation has increased notably and will likely remain elevated in coming months before
moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related
price declines from last spring drop out of the 12-month calculation. In addition, strong demand in
sectors where production bottlenecks or other supply constraints have limited production has led
to especially rapid price increases for some goods and services, which should partially reverse
as the effects of the bottlenecks unwind. Prices for services that were hard hit by the pandemic
have also jumped in recent months as demand for these services has surged with the reopening
of the economy.
To avoid sustained periods of unusually low or high inflation, the Federal Open Market
Committee's (FOMC) monetary policy framework seeks longer-term inflation expectations that
are well anchored at 2 percent, the Committee's longer-run inflation objective. Measures of
longer-term inflation expectations have moved up from their pandemic lows and are in a range
that is broadly consistent with the FOMC's longer-run inflation goal. Two boxes in the
July Monetary Policy Report discuss recent developments in inflation and inflation expectations.
Sustainably achieving maximum employment and price stability depends on a stable financial
system, and we continue to monitor vulnerabilities here. While asset valuations have generally
risen with improving fundamentals as well as increased investor risk appetite, household balance
sheets are, on average, quite strong, business leverage has been declining from high levels, and
the institutions at the core of the financial system remain resilient.
Monetary Policy
I will now turn to monetary policy. At our June meeting, the FOMC kept the federal funds rate near
zero and maintained the pace of our asset purchases. These measures, along with our strong
guidance on interest rates and on our balance sheet, will ensure that monetary policy will
continue to deliver powerful support to the economy until the recovery is complete.
We continue to expect that it will be appropriate to maintain the current target range for the
federal funds rate until labor market conditions have reached levels consistent with the
Committee's assessment of maximum employment and inflation has risen to 2 percent and is on
track to moderately exceed 2 percent for some time. As the Committee reiterated in our June
policy statement, with inflation having run persistently below 2 percent, we will aim to achieve
inflation moderately above 2 percent for some time so that inflation averages 2 percent over time
and longer term inflation expectations remain well anchored at 2 percent. As always, in
assessing the appropriate stance of monetary policy, we will continue to monitor the implications
of incoming information for the economic outlook and would be prepared to adjust the stance of
monetary policy as appropriate if we saw signs that the path of inflation or longer-term inflation
expectations were moving materially and persistently beyond levels consistent with our goal.
In addition, we are continuing to increase our holdings of Treasury securities and agency
mortgage backed securities at least at their current pace until substantial further progress has
been made toward our maximum-employment and price-stability goals. These purchases have
materially eased financial conditions and are providing substantial support to the economy.
At our June meeting, the Committee discussed the economy's progress toward our goals since
we adopted our asset purchase guidance last December. While reaching the standard of
"substantial further progress" is still a ways off, participants expect that progress will continue.
We will continue these discussions in coming meetings. As we have said, we will provide
advance notice before announcing any decision to make changes to our purchases.
We understand that our actions affect communities, families, and businesses across the
country. Everything we do is in service to our public mission. The resumption of our Fed
Listens initiative will further strengthen our ongoing efforts to learn from a broad range of groups
about how they are recovering from the economic hardships brought on by the pandemic. We at
the Federal Reserve will do everything we can to support the recovery and foster progress
toward our statutory goals of maximum employment and stable prices.
Thank you. I am happy to take your questions.