Federal Reserve Chairman Jerome Powell, in his semiannual Monetary Policy Report to Congress, affirmed the central bank’s commitment to achieving maximum employment and price stability. Addressing the Senate Finance, Housing and Urban Affairs Committee, Powell painted a picture of a strong economy with easing inflation, while acknowledging the need for continued vigilance.
Powell noted that the economy has made “significant progress” towards its goals over the past two years. GDP grew by 2.5% in 2024, driven by resilient consumer spending. While investment in equipment and intangibles saw a decline in the fourth quarter, it remained solid for the year overall. The housing sector, after experiencing weakness mid-year, appears to have stabilized.
The labor market remains a source of strength, with job gains averaging 189,000 per month over the past four months. The unemployment rate held steady at a low 4% in January. While nominal wage growth has eased, Powell indicated that the labor market is “broadly in balance” and not contributing significantly to inflationary pressures.
Inflation, a key concern for the Fed, has “eased significantly” over the past two years. Total PCE inflation stood at 2.6% in December, while core PCE, excluding food and energy, reached 2.8%. Powell expressed confidence that longer-term inflation expectations remain “well anchored.”
The Fed’s recent monetary policy actions, including a one percentage point reduction in the policy rate since September, reflect the progress made on inflation and the cooling labor market. Powell emphasized a cautious approach going forward, stating that the Fed does not need to be “in a hurry” to adjust its policy stance. He acknowledged the delicate balance between hindering progress on inflation by easing too quickly and unduly weakening the economy by easing too slowly.
The FOMC will continue to assess incoming data and the evolving economic outlook in determining the appropriate pace and extent of future policy adjustments. Powell reiterated the Fed’s commitment to data-driven decision-making, indicating a willingness to maintain policy restraint if inflation doesn’t move sustainably towards the 2% target, or to ease policy if the labor market weakens or inflation falls faster than anticipated.
Looking ahead, Powell announced the Fed’s second periodic review of its monetary policy strategy, tools, and communications. The review, which will include public outreach and a research conference, will focus on the FOMC’s Statement on Longer-Run Goals and Monetary Policy Strategy and its communication tools. The 2% longer-run inflation goal will remain unchanged. The review is expected to conclude by late summer.
