Fed Chair Powell: Likely Appropriate to Cut Rates This Year
Summary
TLDRIn this monetary policy report, the Federal Reserve chair outlines the central bank's commitment to restoring price stability and achieving its dual mandate of maximum employment and stable inflation. While acknowledging progress made in easing inflation without significantly impacting unemployment, the chair emphasizes that inflation remains above the 2% target. The Fed has maintained a restrictive monetary policy stance but suggests the possibility of adjusting policy restraint at some point this year if economic conditions evolve as expected. However, the chair underscores that any policy adjustments will be carefully assessed to ensure sustainable progress toward the 2% inflation goal, anchoring long-term inflation expectations and promoting long-term economic stability.
Takeaways
- 🎯 The Federal Reserve remains focused on achieving maximum employment and stable prices (inflation rate of 2%).
- 📉 While inflation has eased substantially, it remains above the Fed's 2% target, prompting continued efforts to bring it down.
- 🔍 The Fed is closely monitoring inflation risks and is aware of the hardship high inflation causes, especially for low-income households.
- 💪 The Fed is strongly committed to restoring price stability, which is essential for achieving sustainable strong labor market conditions.
- 📈 Economic activity expanded at a strong pace in 2023, with GDP increasing by 3.1%, bolstered by solid consumer demand and improving supply conditions.
- 💼 The labor market remains relatively tight, with job gains averaging 239,000 per month and the unemployment rate near historic lows at 3.7%.
- ⚖️ Labor supply and demand conditions have continued to come into better balance, with job vacancies declining and nominal wage growth easing.
- 🌐 Long-term inflation expectations appear to have remained well-anchored, as reflected by various surveys and financial market measures.
- 🔒 The Fed has maintained a restrictive stance of monetary policy, with the federal funds rate at 5.25% to 5.5%, and has continued to shrink its balance sheet.
- ⏳ The Fed believes it may be appropriate to begin dialing back policy restraint at some point this year, but the timing and extent will depend on ongoing progress toward the 2% inflation objective.
Q & A
What are the Federal Reserve's primary objectives?
-The Federal Reserve's primary objectives are to promote maximum employment and maintain stable prices for the American people.
How does the speaker assess the current state of the economy?
-The speaker acknowledges that while inflation remains above the 2% target, it has eased substantially, and this progress has been achieved without a significant increase in unemployment. The economy has made considerable progress towards the Fed's dual mandate.
What is the Federal Reserve's stance on inflation?
-The Federal Reserve is strongly committed to returning inflation to its 2% objective and restoring price stability, as it is essential for achieving a sustained period of strong labor market conditions that benefit all.
How does the speaker describe the current labor market conditions?
-The labor market remains relatively tight, but supply and demand conditions have continued to come into better balance. Job gains have averaged 239,000 per month since mid-2022, and the unemployment rate has remained near historical lows at 3.7%.
What actions has the Federal Reserve taken to address inflation?
-The Federal Reserve has significantly tightened the stance of monetary policy since early 2022, maintained the target range for the federal funds rate at 5.25% to 5.5% since July, and continued to shrink its balance sheet at a brisk and predictable pace.
What is the Federal Reserve's outlook on future monetary policy adjustments?
-The Federal Reserve believes that the policy rate is likely at its peak for this tightening cycle if the economy evolves broadly as expected. It may be appropriate to begin dialing back policy restraint at some point this year, but any adjustments will be carefully assessed based on incoming data, the evolving outlook, and the balance of risks.
What criteria will the Federal Reserve consider before reducing the target range for the policy rate?
-The Federal Reserve 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%.
How does the speaker emphasize the Federal Reserve's commitment to its goals?
-The speaker states that the Federal Reserve remains committed to bringing inflation back down to its 2% goal and keeping longer-run inflation expectations well-anchored, as restoring price stability is essential to achieving maximum employment and stable prices over the longer run.
What is the overall tone and message conveyed by the speaker?
-The overall tone is one of cautious optimism, acknowledging progress made but emphasizing the Federal Reserve's unwavering commitment to achieving its dual mandate of maximum employment and price stability through careful monitoring and data-driven policy adjustments.
How does the speaker address the impact of the Federal Reserve's actions on the public?
-The speaker acknowledges that the Federal Reserve's actions affect communities, families, and businesses across the country, and states that everything they do is in service to their public mission of achieving maximum employment and price stability goals.
Outlines
📈 Federal Reserve's Commitment to Economic Progress
The Federal Reserve remains focused on its dual mandate of promoting maximum employment and stable prices. Although inflation remains above the 2% target, it has eased substantially without significant unemployment increases. The economy expanded strongly in 2023, with GDP growth of 3.1%, driven by solid consumer demand and improving supply conditions. The labor market remains tight, with job gains averaging 239,000 per month since mid-year and an unemployment rate of 3.7%. Inflation has eased notably but remains above the 2% goal, with core PCE prices rising 2.8% over the past 12 months. The Fed has raised interest rates and shrunk its balance sheet to combat inflation. While policy restraint may need to be reduced at some point this year, the Fed remains committed to bringing inflation down to 2% sustainably.
🎯 Unwavering Dedication to Economic Objectives
The Federal Reserve reaffirms its commitment to achieving its maximum employment and price stability goals. It acknowledges the impact of its actions on communities, families, and businesses across the country and pledges to do everything within its power to accomplish its public mission.
Mindmap
Keywords
💡Federal Reserve
💡Dual mandate
💡Inflation
💡Monetary policy
💡Gross Domestic Product (GDP)
💡Labor market
💡Federal funds rate
💡Price stability
💡Economic outlook
💡Policy restraint
Highlights
The Federal Reserve remains focused on promoting maximum employment and stable prices for the American people.
While inflation remains above the FOMC's 2% objective, it has eased substantially without a significant increase in unemployment.
The FOMC is strongly committed to returning inflation to its 2% objective, as restoring price stability is essential to achieve a sustained period of strong labor market conditions.
Economic activity expanded at a strong pace in 2023, with GDP increasing by 3.1%, bolstered by solid consumer demand and improving supply conditions.
The labor market remains relatively tight, with strong job creation averaging 239,000 jobs per month since mid-2022 and an unemployment rate near historical lows at 3.7%.
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.
The strong labor market has also helped to narrow long-standing disparities in employment and earnings across demographic groups.
Inflation has eased notably over the past year but remains above the Fed's 2% goal, with total PCE prices rising 2.4% and core PCE prices rising 2.8% over the 12 months ending in January.
Long-term inflation expectations appear to have remained well-anchored, as reflected by surveys and financial market measures.
The Federal Reserve has maintained the target range for the federal funds rate at 5.25% to 5.5% since July 2022, while continuing to shrink its balance sheet at a brisk pace.
The restrictive stance of monetary policy is putting downward pressure on economic activity and inflation.
The Fed believes the policy rate is likely at its peak for this tightening cycle if the economy evolves broadly as expected, and it will likely be appropriate to begin dialing back policy restraint at some point this year.
Reducing policy restraint too soon or too much could result in a reversal of progress on inflation and require even tighter policy, while reducing it too late or too little could unduly weaken economic activity and employment.
The Fed does not expect to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
The Federal Reserve remains committed to bringing inflation back down to its 2% goal and keeping longer-run inflation expectations well-anchored, as restoring price stability is essential to achieving maximum employment and stable prices over the longer run.
Transcripts
Chairman McHenry, Ranking Member Waters and other members of the committee.
I appreciate the opportunity to present the Federal Reserve's semi-annual
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 FOMC objective of 2%, it has eased
substantially and the slowing in inflation has occurred without a
significant increase in unemployment. As the labor market tightness has eased
and progress on inflation has continued, the risks to achieving our employment
and inflation goals have been moving in a 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% 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.
Economic activity expanded at a strong pace over the past year for 2023 as a
whole. GROSS domestic product increased 3.1%,
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%.
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, labour demand still exceeds the supply of available workers.
The strong labour market over the past two years has also helped to narrow long
standing disparities in employment and earnings across demographic groups.
Inflation has eased notably over the past year, but remains above the
pharmacy's longer run goal of 2%. Total personal consumption expenditures
prices rose 2.4% over the 12 months ending in January.
Excluding the volatile food and energy categories, core PC prices rose 2.8%, a
notable slowing from 2022 that was widespread across both goods and
services prices. Long 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. After significantly tightening the
stance of monetary policy since early 2022, the FOMC has maintained the target
range for the federal funds rate at five and a quarter to five and a half percent
since its meeting last July. We've also continued to shrink our
balance sheet at a brisk pace and in a predictable manner.
A 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%
objective for inflation is not assured. Reducing policy restraint.
Too soon or too much could result in a reversal of progress we've seen in
inflation and ultimately require even tighter policy to get inflation back to
2%. 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 for the policy rate.
We will carefully assess the incoming data, the evolving outlook in 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%.
We remain committed to bring inflation back down to our 2% goal and to keeping
longer run 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.
5.0 / 5 (0 votes)