Powell's testimony: Wait and see, and consider adjusting policies after clear signals

Source: Jinshi Data

On June 24, Federal Reserve Chairman Powell will appear on Capitol Hill to attend a hearing of the House Financial Services Committee. In his testimony released in advance, he said that despite the uncertainty, the US economy is still in good shape. The unemployment rate remains low, the labor market is close to full employment, and inflation has declined but is still above the 2% target.

Therefore, the Federal Reserve maintains the target range of the federal funds rate unchanged and will continue to adjust monetary policy based on data and economic prospects.

The following is a translation of his full testimony.

Full text of Powell's testimony

Chairman Hill, Senior Member Waters, and members of the committee:

Thank you for giving me this opportunity to report to you on the Federal Reserve's semi-annual monetary policy report.

The Federal Reserve remains focused on achieving our dual mandate of maximum employment and stable prices for the benefit of all Americans. Despite the current uncertainty, the U.S. economy remains in a solid position. Unemployment remains low, and the labor market is at or near maximum employment. Although inflation has declined sharply, it remains slightly above our longer-run 2 percent objective. We are highly aware of the risks to both of these mandates.

I will now provide an overview of the current economic situation before discussing monetary policy.

Current Economic Situation and Outlook

The latest data show that the U.S. economy remains solid. After growing 2.5 percent last year, gross domestic product (GDP) fell slightly in the first quarter, driven primarily by fluctuations in net exports, which resulted from companies bringing forward imports in anticipation of potential tariffs. This unusual volatility complicates the measurement of GDP.

Private domestic final purchases (PDFP), which exclude net exports, inventory investment and government spending, maintained a solid growth of 2.5%. In PDFP, consumer spending growth slowed, but equipment and intangible asset investment rebounded significantly from the weakness in the fourth quarter of last year.

However, recent household and business surveys have shown that market confidence has declined and uncertainty about the economic outlook has increased, mainly related to trade policy. How these factors will affect future spending and investment remains to be seen.

In terms of the labor market, the situation remains solid. In the first five months of this year, non-farm payrolls increased by an average of 124,000 per month, which is a moderate increase. The unemployment rate in May was 4.2%, which remained within the narrow fluctuation range of the past year. Wage growth has slowed down, but it is still above the inflation level. Overall, multiple indicators show that the labor market is in a balanced state as a whole, consistent with the maximum employment goal, and the current labor market has not become a significant inflation driver. Strong employment in recent years has also helped narrow employment and income gaps between different groups.

Inflation has fallen significantly since its high in mid-2022, but it is still slightly higher than the long-term target of 2%. According to estimates such as the Consumer Price Index, personal consumption expenditures (PCE) prices rose 2.3% in the past 12 months as of May, and core PCE, which excludes volatile factors such as food and energy, rose 2.6%.

Recent inflation expectations have risen, both in the market and in survey data, and respondents generally believe that tariffs are the driving factor behind it. However, in the longer term, most inflation expectations indicators remain consistent with our 2% target.

Monetary Policy

Our monetary policy has always been based on the core mission of achieving maximum employment and price stability. With the labor market close to maximum employment and inflation still elevated, the Federal Open Market Committee (FOMC) has maintained the target range for the federal funds rate at 4.25% to 4.5% since the beginning of the year.

At the same time, we continued to reduce our holdings of Treasury securities and agency mortgage-backed securities, and since April, we have further slowed the pace of this reduction in order to smooth the transition to an "ample reserve" state. Going forward, we will continue to flexibly adjust the stance of monetary policy based on new data, changes in the economic outlook, and the balance of risks.

The policy environment is still evolving, and its impact on the economy is uncertain. The impact of tariffs will depend on their ultimate level. As of April, market expectations for tariff levels peaked and have since retreated. Even so, this year's tariff increases are expected to push up prices and put some pressure on economic activity.

The impact of inflation may be only a one-time jump in price levels, but the possibility of a more persistent inflationary effect cannot be ruled out. Whether the latter can be avoided depends on the extent of the tariffs' impact, how long it takes for them to be passed through to prices, and whether we can effectively anchor longer-term inflation expectations.

The FOMC's responsibility is to ensure that longer-term inflation expectations are well anchored and to prevent a one-time increase in prices from becoming a persistent inflation problem. In fulfilling this responsibility, we will balance our two missions of maximum employment and price stability, while keeping in mind that without price stability, it will be difficult to achieve a long-term strong labor market that benefits all Americans.

At this time, we believe we are well positioned to patiently wait for more clear signals about the direction of the economy before deciding whether to adjust the stance of policy.

Finally, we know that our decisions affect communities, families, and businesses across the country. Everything we do is in the service of our public mission. The Federal Reserve will do its best to achieve our goals of maximum employment and price stability.

Thank you, and I'm willing to take your questions.