Chairman Brown, Ranking Member Scott, and my fellow members of the Committee, I want to thank you for the opportunity to present the Federal Reserve’s Semiannual Report. Monetary Policy Report.
The Federal Reserve remains focused on its dual mission of promoting maximum employment and stable prices for the benefit of the American people. Over the past two years, the economy has made significant progress toward the Federal Reserve’s 2 percent inflation goal, and labor market conditions, while still strong, have remained stable. Reflecting these developments, the risks to achieving our employment and inflation objectives are becoming more balanced.
Before moving on to monetary policy, I would like to review the current economic situation.
Current economic situation and outlook
Recent indicators suggest that the U.S. economy continues to expand at a solid pace. Gross domestic product growth appears to have slowed in the first half of this year after a remarkable strength in the second half of last year. However, private domestic demand remains strong, and consumer spending is growing at a moderate but steady clip. Additionally, business investment has increased modestly so far this year, and housing investment has recovered. Improving supply conditions have supported solid demand and the robust performance of the U.S. economy over the past year.
In the labor market, a wide range of indicators suggest that conditions have returned to pre-pandemic levels, i.e., favorable but not overheated. The unemployment rate is rising but was still low at 4.1% in June. The number of payroll workers increased by an average of 222,000 per month in the first half of the year. Strong job creation over the past few years has also been driven by an increasing supply of workers, reflecting a rise in labor force participation among 25-54 year-olds and a surge in immigration. As a result, the gap between the number of employed and the number of workers has narrowed significantly since its peak and is now only slightly above 2019 levels. Nominal wage growth has slowed over the past year. The favorable labor market has helped narrow long-standing disparities in employment and income across demographic groups.1
While inflation has eased significantly over the past few years, it remains above the Committee’s longer-run goal of 2 percent. Total personal consumption expenditures (PCE) prices increased 2.6 percent over the 12 months ending in May. Core PCE prices, which exclude the more volatile food and energy categories, also increased 2.6 percent. While progress toward the 2 percent inflation target was lacking earlier this year, the latest monthly data indicate modest progress. Longer-term inflation expectations, as reflected in a broad range of surveys of households, businesses, and forecasters and in financial market indicators, appear to remain anchored.
Financial policy
Our monetary policy is guided by our dual mission of promoting 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 5.25 to 5.5 percent since last July, after significantly tightening the stance of monetary policy over the past year and a half. We have also continued to reduce our securities holdings. At our May meeting, we decided to slow the pace of our balance sheet reduction starting in June, consistent with our previously announced plan. Our tightening monetary policy stance has helped to bring demand and supply conditions into more equilibrium, putting downward pressure on inflation.
The Committee has stated that it would not be appropriate to lower the target range for the federal funds rate until it has greater confidence that inflation is sustainably trending toward 2 percent. Data from the first quarter of this year did not support such increased confidence. However, the latest inflation measures indicate some further progress, and better data would increase confidence that inflation is sustainably trending toward 2 percent.
We continue to take decisions at each meeting. We know that relaxing policy restraints too soon or too much could stall or even reverse the progress seen on inflation. At the same time, higher inflation is not the only risk we face, given the progress made over the past two years both in lowering inflation and in cooling the labor market. Relaxing policy restraints too late 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 evolving expectations, the balance of risks, and the appropriate path of monetary policy.
Congress has entrusted the Federal Reserve with the operational independence it needs to take the long view in pursuing our dual mission of maximum employment and stable prices. We remain committed to lowering inflation to our 2 percent objective and keeping long-run inflation expectations firmly anchored. The restoration of price stability is essential to achieving maximum employment and stable prices over the long run. Our success in achieving these goals matters to all Americans.
Finally, I want to emphasize that we understand that our actions impact communities, families and businesses across the country, and everything we do is in service of our public mission.
Thank you and I’d be happy to answer any questions you may have.
1. Latest Monetary Policy Report“Employment and Income Across Demographic Groups” discusses differences in labor market outcomes between segments of the population. Back to text
