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    Jerome Powell's Written Testimony

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    Tim Moore
    Jerome Powell, Chair of the Federal Reserve, testified before the Senate Banking Committee about current monetary policy. [1] Inflation remains too high at over 5% and the Fed has more work to do to lower inflation to its 2% target through interest rate hikes. [2] While the economy slowed in 2022, the labor market remains extremely tight with low unemployment and many job openings. [3] The Fed will continue raising interest rates and reducing its balance sheet to bring down inflation over time.

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    Jerome Powell's Written Testimony

    Uploaded by

    Tim Moore
    7K views5 pages
    Jerome Powell, Chair of the Federal Reserve, testified before the Senate Banking Committee about current monetary policy. [1] Inflation remains too high at over 5% and the Fed has more work to do to lower inflation to its 2% target through interest rate hikes. [2] While the economy slowed in 2022, the labor market remains extremely tight with low unemployment and many job openings. [3] The Fed will continue raising interest rates and reducing its balance sheet to bring down inflation over time.

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    Jerome Powell's opening statement

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    Jerome Powell, Chair of the Federal Reserve, testified before the Senate Banking Committee about current monetary policy. [1] Inflation remains too high at over 5% and the Fed has more work to do to lower inflation to its 2% target through interest rate hikes. [2] While the economy slowed in 2022, the labor market remains extremely tight with low unemployment and many job openings. [3] The Fed will continue raising interest rates and reducing its balance sheet to bring down inflation over time.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7K views5 pages

    Jerome Powell's Written Testimony

    Uploaded by

    Tim Moore
    Jerome Powell, Chair of the Federal Reserve, testified before the Senate Banking Committee about current monetary policy. [1] Inflation remains too high at over 5% and the Fed has more work to do to lower inflation to its 2% target through interest rate hikes. [2] While the economy slowed in 2022, the labor market remains extremely tight with low unemployment and many job openings. [3] The Fed will continue raising interest rates and reducing its balance sheet to bring down inflation over time.

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    of 5

    For release on delivery

    10:00 a.m. EST


    March 7, 2023

    Statement by

    Jerome H. Powell

    Chair

    Board of Governors of the Federal Reserve System

    before the

    Committee on Banking, Housing, and Urban Affairs

    U.S. Senate

    March 7, 2023
    Chairman Brown, Ranking Member Scott, and other members of the Committee, I

    appreciate the opportunity to present the Federal Reserve’s semiannual Monetary Policy Report.

    My colleagues and I are acutely aware that high inflation is causing significant hardship,

    and we are strongly committed to returning inflation to our 2 percent goal. Over the past year,

    we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot

    of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more

    work to do. Our policy actions are guided by our dual mandate to promote maximum

    employment and stable prices. Without price stability, the economy does not work for anyone.

    In particular, without price stability, we will not achieve a sustained period of labor market

    conditions that benefit all.

    I will review the current economic situation before turning to monetary policy.

    Current Economic Situation and Outlook

    The data from January on employment, consumer spending, manufacturing production,

    and inflation have partly reversed the softening trends that we had seen in the data just a month

    ago. Some of this reversal likely reflects the unseasonably warm weather in January in much of

    the country. Still, the breadth of the reversal along with revisions to the previous quarter

    suggests that inflationary pressures are running higher than expected at the time of our previous

    Federal Open Market Committee (FOMC) meeting.

    From a broader perspective, inflation has moderated somewhat since the middle of last

    year but remains well above the FOMC’s longer-run objective of 2 percent. The 12-month

    change in total personal consumption expenditures (PCE) prices has slowed from its peak of

    7 percent in June to 5.4 percent in January as energy prices have declined and supply chain

    bottlenecks have eased.


    -2-

    Over the past 12 months, core PCE inflation, which excludes the volatile food and energy

    prices, was 4.7 percent. As supply chain bottlenecks have eased and tighter policy has restrained

    demand, inflation in the core goods sector has fallen. And while housing services inflation

    remains too high, the flattening out in rents evident in recently signed leases points to a

    deceleration in this component of inflation over the year ahead.

    That said, there is little sign of disinflation thus far in the category of core services

    excluding housing, which accounts for more than half of core consumer expenditures. To restore

    price stability, we will need to see lower inflation in this sector, and there will very likely be

    some softening in labor market conditions. Although nominal wage gains have slowed

    somewhat in recent months, they remain above what is consistent with 2 percent inflation and

    current trends in productivity. Strong wage growth is good for workers but only if it is not

    eroded by inflation.

    Turning to growth, the U.S. economy slowed significantly last year, with real gross

    domestic product rising at a below-trend pace of 0.9 percent. Although consumer spending

    appears to be expanding at a solid pace this quarter, other recent indicators point to subdued

    growth of spending and production. Activity in the housing sector continues to weaken, largely

    reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to

    be weighing on business fixed investment.

    Despite the slowdown in growth, the labor market remains extremely tight. The

    unemployment rate was 3.4 percent in January, its lowest level since 1969. Job gains remained

    very strong in January, while the supply of labor has continued to lag. 1 As of the end of

    December, there were 1.9 job openings for each unemployed individual, close to the all-time

    1
    A box in our latest Monetary Policy Report, “Why Has the Labor Force Recovery Been So Slow?” discusses the
    factors that have been holding back labor supply.
    -3-

    peak recorded last March, while unemployment insurance claims have remained near historical

    lows.

    Monetary Policy

    With inflation well above our longer-run goal of 2 percent and with the labor market

    remaining extremely tight, the FOMC has continued to tighten the stance of monetary policy,

    raising interest rates by 4½ percentage points over the past year. We continue to anticipate that

    ongoing increases in the target range for the federal funds rate will be appropriate in order to

    attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent

    over time. In addition, we are continuing the process of significantly reducing the size of our

    balance sheet. 2

    We are seeing the effects of our policy actions on demand in the most interest-sensitive

    sectors of the economy. It will take time, however, for the full effects of monetary restraint to be

    realized, especially on inflation. In light of the cumulative tightening of monetary policy and the

    lags with which monetary policy affects economic activity and inflation, the Committee slowed

    the pace of interest rate increases over its past two meetings. We will continue to make our

    decisions meeting by meeting, taking into account the totality of incoming data and their

    implications for the outlook for economic activity and inflation.

    Although inflation has been moderating in recent months, the process of getting inflation

    back down to 2 percent has a long way to go and is likely to be bumpy. As I mentioned, the

    latest economic data have come in stronger than expected, which suggests that the ultimate level

    of interest rates is likely to be higher than previously anticipated. If the totality of the data were

    to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate

    2
    A box in our latest Monetary Policy Report, “Developments in the Federal Reserve’s Balance Sheet and Money
    Markets,” discusses changes in the size of the Federal Reserve’s balance sheet.
    -4-

    hikes. Restoring price stability will likely require that we maintain a restrictive stance of

    monetary policy for some time.

    Our overarching focus is using our tools to bring inflation back down to our 2 percent

    goal and to keep longer-term inflation expectations well anchored. Restoring price stability is

    essential to set the stage for achieving maximum employment and stable prices over the longer

    run. The historical record cautions strongly against prematurely loosening policy. We will stay

    the course until the job is done.

    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.

    Thank you. I am happy to take your questions.

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