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.