The financial world turned its attention to Federal Reserve Chair Jerome Powell as he delivered his semiannual monetary policy report to Congress. This highly anticipated testimony came at a crucial juncture for the US economy and monetary policy.
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Create account Try a demo Download mobile app Download mobile appKey Points from Jerome Powell's Testimony
Economic Outlook and Current State
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The US economy demonstrates overall strength, with GDP growth exceeding 2% in 2024, supported by resilient consumer spending. However, equipment investment shows signs of slowing.
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Inflation has made substantial progress toward the Fed's 2% goal, though it remains somewhat elevated. Total PCE rose 2.6% in the 12 months to December, while core PCE increased 2.8%.
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The labor market maintains a stable position with the unemployment rate holding steady at low levels. Notably, Powell emphasized that labor conditions are not currently a source of inflationary pressures.
Policy Stance and Future Direction
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Powell stressed there is no urgency to adjust monetary policy, indicating a patient approach to future rate decisions.
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The Fed is prepared to maintain policy restraint for a longer period if the economy stays strong and inflation doesn't move decisively toward the 2% target.
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Conversely, the Fed stands ready to ease policy if they observe unexpected labor market weakness or faster-than-anticipated inflation decline.
Framework Review and Long-term Strategy
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A comprehensive review of the Fed's monetary policy framework is underway and will conclude by late summer.
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The 2% inflation target will remain unchanged and is not subject to review.
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The framework review will incorporate lessons from the past five years and include public engagement through Fed Listens events.
Risk Assessment
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Powell emphasized that policy is well-positioned to handle current risks and uncertainties.
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The Fed remains attentive to risks on both sides of its mandate - maximum employment and price stability.
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The committee views the risks to achieving its goals as roughly balanced.
Powell's testimony reflects a cautious and balanced approach, suggesting the Fed will require substantial evidence before making any significant policy adjustments. The focus remains on achieving sustainable progress toward the 2% inflation target while maintaining strong labor market conditions.
There was slight reaction to the testimony on EURUSD pair. Source: xStation
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