During a House Financial Services Committee hearing on Tuesday, Federal Reserve Chair Jerome Powell delivered his opening remarks about the current state of the U.S. economy.
00:00Thank you, Chairman Hill, Ranking Member, and other members of the committee.
00:05It's great to be back here today.
00:06I appreciate the opportunity to present the Federal Reserve's semiannual monetary policy report.
00:12The Federal Reserve remains squarely focused on achieving our dual mandate goals of maximum employment
00:17and stable prices for the benefit of the American people.
00:20Despite elevated uncertainty, the economy is in a solid position.
00:24The unemployment rate remains low, and the labor market is at or near maximum employment.
00:30Inflation has come down a great deal, but has been running somewhat above our 2% longer-run objective.
00:36We are attentive to the risks on both sides of our dual mandate.
00:41I will review the current economic situation before turning to monetary policy.
00:47Incoming data suggests that the economy remains solid.
00:50Following growth of 2.5% last year, GDP was reported to have edged down in the first quarter,
00:57reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs.
01:03This unusual swing has complicated GDP measurement.
01:07Private domestic final purchases, or PDFP, which excludes net exports, inventory investment, and government spending,
01:15grew at a solid 2.5% rate.
01:17Within PDFP, growth of consumer spending moderated, while investment in equipment and intangibles rebounded from weakness in the fourth quarter.
01:28Surveys of households and businesses, however, reported a decline in settlement sentiment in recent months
01:33and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns.
01:38It remains to be seen how these developments might affect future spending and investment.
01:44In the labor market, conditions have remained solid.
01:47Payroll job gains averaged a moderate $224,000 per month in the first five months of the year.
01:53The unemployment rate, at 4.2% in May, remains low and has stayed in a narrow range for the past year.
02:01Wage growth has continued to moderate, while still outpacing inflation.
02:05Overall, a wide set of indicators suggest that the conditions in the labor market are broadly in balance
02:10and consistent with maximum employment.
02:13The labor market is not a source of significant inflationary pressures.
02:17The strong labor market conditions in recent years have helped narrow longstanding disparities in employment and earnings across demographic groups.
02:28Inflation has eased significantly from its highs in mid-2022,
02:32but remains somewhat elevated relative to our 2% longer-run goal.
02:36Estimates based on the Consumer Price Index and other data indicate that total personal consumption expenditures,
02:42or PCE, prices rose 2.3% over the 12 months ending in May,
02:47and that, excluding the volatile food and energy categories, core PCE prices rose 2.6%.
02:53Near-term measures of inflation expectations have moved up over recent months,
02:58as reflected in both market and survey-based measures.
03:02Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor.
03:09Beyond the next year or so, however,
03:10most measures of longer-term expectations remain consistent with our 2% inflation goal.
03:15Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people.
03:25With the labor market at or near maximum employment and inflation remaining somewhat elevated,
03:30the Federal Open Market Committee has maintained the target range for the federal funds rate at 4.25% to 4.5% since the beginning of the year.
03:37We have also continued to reduce our holdings of Treasury and agency mortgage-backed securities,
03:44and beginning in April, further slowed the pace of this decline to facilitate a smooth transition to ample reserve balances.
03:51We will continue to determine the appropriate stance of monetary policy based on the incoming data,
03:56the evolving outlook, and the balance of risks.
03:58Policy changes continue to evolve, and their effects on the economy remain uncertain.
04:03The effects of tariffs will depend, among other things, on their ultimate level.
04:07Expectations of that level, and thus of the related economic effects,
04:10reached a peak in April and have since declined.
04:14Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.
04:20The effects on inflation could be short-lived, reflecting a one-time shift in the price level.
04:26It's also possible that the inflationary effects could instead be more persistent.
04:30Avoiding that would depend on the size of the tariff effects,
04:33on how long it takes for them to pass through fully into prices,
04:36and ultimately on keeping longer-term inflation expectations well anchored.
04:41Our obligation is to keep longer-term inflation expectations well anchored,
04:45and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.
04:50As we act to meet that obligation, we will balance our maximum employment and price stability mandates,
04:55keeping in mind that without price stability,
04:58we cannot achieve the long periods of strong labor market conditions that benefit all Americans.
05:03For the time being, we are well-positioned to wait to learn more about the likely course of the economy
05:07before considering any adjustments to our policy stance.
05:10To conclude, we understand that our actions affect communities, families, and businesses across the country.
05:16Everything we do is in service to our public mission.
05:19We at the Fed will do everything we can to achieve our maximum employment and price stability goals.
