Fed Chair Powell: "we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent."

Today in testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Fed Chair Jerome Powell provided a comprehensive overview of the current economic situation and the Fed's monetary policy actions.

Powell noted that recent indicators suggest solid economic expansion, with gross domestic product growth moderating in the first half of the year. Consumer spending remains robust (as we discussed previously), and there has been moderate growth in capital spending and residential investment. The labor market has also stabilized, with an unemployment rate of 4.1% in June and an average of 222,000 payroll job gains per month in the first half of the year.

Powell goes on to say inflation has eased over the past two years but remains above the Fed's long-term goal of 2%. Total personal consumption expenditures (PCE) prices rose 2.6% over the 12 months ending in May, with core PCE prices also increasing by 2.6%. Powell emphasized that longer-term inflation expectations remain well anchored, which is crucial for sustained economic stability.

Regarding monetary policy, Powell reiterated the Fed's commitment to its dual mandate. The target range for the federal funds rate has been maintained at 5-1/4 to 5-1/2% since last July, following significant tightening over the previous year and a half. The Fed has also continued to reduce its securities holdings, with a slowdown in balance sheet runoff starting in June. Powell cautioned that reducing policy restraint prematurely could undermine progress on inflation, while delaying or insufficient action could weaken economic activity and employment. He says the Fed will continue to assess incoming data meeting to meeting..

"we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence."
- Fed Chair Jerome Powell

TLDRS:

• Fed Chair Jerome Powell testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, highlighting economic expansion despite moderating GDP growth in the first half of the year.
  • "we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence."
• Consumer spending remains robust, with moderate growth in capital spending and residential investment.
• The labor market has stabilized with a 4.1% unemployment rate and an average of 222,000 payroll job gains per month in the first half of the year.
• Inflation has eased but is still above the Fed's 2% goal, with total and core personal consumption expenditures (PCE) prices rising 2.6% over the past 12 months
  • Longer-term inflation expectations remain well anchored.
• A combination of slower wage growth, higher interest rates, and depleted savings indicate that the headwinds will continue against consumers and this will continue to play heavily on consumer spending moving forward.
• Reminder, consumer spending is a major factor in the U.S. economy and its GDP, it goes down, companies fail.
• I believe inflation is the match that has been lit that will light the fuse of our rocket.