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. * * * 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 bottle

, if the baseline scenario in our most recent projections is confirmed, we will still have ground to cover to make sure that inflation pressures are stamped out. second, while the european banking sector is resilient, with strong capital and liquidity positions, in view of recent financial market volatility, we are ready to act and provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy. but it should be clear that there is no trade - off between price stability and financial stability. as we have proven many times, we are able to set the appropriate policy stance to control inflation and at the same time use other instruments to address risks to monetary policy transmission. we did this when we decided to use reinvestments under the pandemic emergency purchase programme more flexibly, and when we agreed on the transmission protection instrument. these programmes ensured that rate normalisation proceeded smoothly. the third element of a robust strategy is a clear reaction function. at our last meeting, we clarified our reaction function and the sources of information that will be important to us. the future calibration of the rate path will be determined by – and will require continuous monitoring of – three key inputs, and this is what i will explain now. the inflation outlook the first input is our assessment of the inflation outlook in light of the incoming economic and financial data. this will be informed primarily by our staff inflation projections. monetary policy must be forward - looking, given the lags with which our policy works. and the staff inflation projections are the best mechanism for distilling incoming economic and financial data into a comprehensive picture of medium - term inflation dynamics. the future rate path will depend on whether we see inflation converging durably to our target in our forecasts, and the level of confidence we have in this convergence as captured by the balance of risks. our latest forecasts see headline inflation at 2. 1 % in 2025 and core inflation at 2. 2 %, which is a downward revision compared with our last projection round in december. but the confidence band around these forecasts is now unusually wide. as the cut - off date for the projection round was in early march, the forecasts do not incorporate the effects of the recent financial market tensions. those tensions have added new downside risks and have made the risk assessment blurrier. more generally, many of the assumptions in the projections, such as those on fiscal policies and energy and food prices, are volatile