Source: Jin10 Data
On Tuesday, July 9th, Eastern Time, at the semi-annual monetary policy report hearing held by the Senate Banking Committee, Powell first read a prepared speech. The Fed has previously stated more than once that it is not appropriate to cut interest rates before it is more confident that inflation is moving towards the Fed's target of 2%. This time, Powell mentioned in the speech that more confidence is needed to reduce inflation.
Chairman Brown, Senior Committee Member Scott, and other members of the committee, I am pleased to have the opportunity to introduce the Federal Reserve's semiannual monetary policy report to all of you.
The Federal Reserve remains focused on our dual mandate of promoting maximum employment and stable prices for the American people. Over the past two years, we have made significant progress towards the Federal Reserve's 2% inflation target, while the labor market conditions have remained strong but have cooled somewhat. Given these developments, the risks to achieving our employment and inflation objectives are better balanced.
Before discussing monetary policy, I will review the current economic situation.
Current Economic Situations and Outlook
Recent indicators show that the U.S. economy continues to expand at a moderate pace. Following the impressive strong growth in the second half of last year, GDP growth in the first half of this year appears to have slowed somewhat. However, private domestic demand remained strong, with consumer spending growth slowing but remaining robust. We have seen moderate growth in capital expenditures so far this year and a rebound in residential investment. Improving supply conditions have supported resilient demand and strong performance of the U.S. economy over the past year.
In the labor market, a broad range of indicators suggests that the situation has returned to pre-pandemic levels: strong, but not overheating. The unemployment rate has increased but remained at a low rate of 4.1% in June. On average, 0.222 million jobs were added each month in the first half of this year. Over the past several years, employment growth has been strong in conjunction with labor supply, primarily reflecting increases in labor force participation rates among individuals aged 25 to 54 and robust immigration growth. As a result, the gap between job openings and workers is far below its peak and currently only slightly above the 2019 level. Nominal wage growth has slowed over the past year. A strong labor market has helped to narrow the long-standing employment and income gaps between different population groups.
Inflation has eased noticeably over the past few years but remains above the Federal Reserve's long-term target of 2%. Personal consumption expenditures (PCE) prices rose by 2.6% in the 12 months ending in May. Core PCE, which excludes the more volatile food and energy categories, also rose 2.6%. We did not make progress in achieving the 2% inflation target earlier this year, but recent monthly data show moderate further progress in inflation. Long-term inflation expectations still appear to be well anchored, based on broad surveys of households, businesses, and forecasters, as well as market indicators.
Monetary Policy
Our monetary policy actions are guided by the dual mandate of promoting maximum employment and stable prices for the American people. In support of these goals, the Committee has maintained the target range for the federal funds rate at 5.25% to 5.5% since last July, after having significantly tightened monetary policy over the prior year and a half. We have also continued to reduce our holdings of securities. At our May meeting, we decided to slow down the pace of balance sheet normalization starting in June, consistent with our previously announced plans. Our restrictive monetary policy stance helps to better balance demand and supply conditions and puts downward pressure on inflation.
The Federal Open Market Committee has indicated that it is not appropriate to lower the target range for the federal funds rate until we have greater confidence that we are making sustained progress toward 2 percent inflation. The data available as of the first quarter didn't support increased confidence in that regard. However, recent inflation data have shown some moderate further progress, and more-generally favorable data would increase our confidence that inflation is moving toward our goal.
We continue to weigh our decisions carefully. We know that reducing policy restraints too quickly or too much could jeopardize the progress toward our inflation objective or lead to financial excesses. However, given the considerable progress we have seen with respect to lowering inflation and cooling the labor market over the past two years, rising inflation is not the only risk we face. Reducing policy restraints too slowly or too little could lead to excessive weakness in economic activity and employment. In considering adjustments to the target range for the federal funds rate, the Committee will continue to assess carefully the incoming data and their implications for the constantly changing outlook, risks balanced, and appropriate path of monetary policy.
Congress has given the Federal Reserve operational independence that is needed to take a longer-term perspective when pursuing our dual mandate of maximum employment and price stability. We remain committed to reducing the inflation rate to our 2% target and maintaining stable long-term inflation expectations. Restoring price stability is critical to achieving maximum employment and long-term price stability. Whether or not we succeed in achieving these objectives matters to all Americans.
Finally, I want to emphasize that we understand that our actions affect communities, households, and businesses across the country. Everything we do is in service of our public mission.
Thank you! I'd be happy to answer your questions.
Editor / jayden