Powell's testimony: Watch and wait for changes, consider adjusting policy after clear signals.

Source: Jin10

On June 24, Federal Reserve Chairman Powell will appear on Capitol Hill to attend a hearing of the House Financial Services Committee. In his pre-released testimony, he stated that despite facing uncertainties, the U.S. economy remains in good shape. The unemployment rate remains low, the labor market is close to full employment, and while inflation has decreased, it is still above the 2% target.

Therefore, the Federal Reserve will maintain the target range for the federal funds rate and will continue to adjust monetary policy based on data and economic outlook.

The following is the full translation of his testimony.

Full Text of Powell's Testimony

Chairman Hill, senior member Waters, and all members of the committee:

Thank you all for giving me this opportunity to report on the Federal Reserve's semiannual monetary policy report.

The Federal Reserve remains focused on achieving our dual mandate goals - maximum employment and price stability - for the benefit of all American people. Despite the current situation being full of uncertainty, the U.S. economy remains in a solid state. The unemployment rate remains low, and the labor market is at or near maximum employment levels. Although inflation has significantly fallen, it is still slightly above our long-term 2% target. We are closely monitoring the various risks facing these two mandate goals.

Next, I will first outline the current economic situation, and then discuss monetary policy.

Current Economic Situation and Outlook

Latest data shows that the U.S. economy remains robust. Following a 2.5% growth achieved last year, the first quarter saw a slight decline in Gross Domestic Product (GDP), primarily affected by fluctuations in net exports, which were due to businesses importing in advance to cope with potential tariffs. This unusual volatility has made GDP calculations more complex.

Private domestic final purchases (PDFP), excluding net exports, inventory investment, and government spending, maintained a robust growth of 2.5%. In the PDFP, the growth rate of consumer spending has slowed down, but investment in equipment and intangible assets has rebounded significantly from the weakness seen in the fourth quarter of last year.

However, recent surveys of multiple households and businesses indicate that market confidence has declined, and uncertainty regarding economic prospects has increased, primarily related to trade policies. How these factors will affect future spending and investment remains to be seen.

In terms of the labour market, the situation remains solid. In the first five months of this year, non-farm payrolls added an average of 124,000 jobs per month, which is a moderate growth. The unemployment rate was 4.2% in May, remaining within a tight range over the past year. Wage growth has slowed, but remains above inflation. Overall, a number of indicators suggest that the labor market as a whole is in balance, in line with the maximum employment target, and that the current labor market is not a significant driver of inflation. The strong employment situation in recent years has also helped to reduce the employment and income gap between different groups.

Inflation has significantly decreased since its peak in mid-2022, but it remains slightly above the long-term target of 2%. According to data such as the Consumer Price Index, personal consumption expenditures (PCE) prices rose by 2.3% in the past 12 months ending in May, while the core PCE, excluding volatile factors like food and energy, increased by 2.6%.

Recent inflation expectation indicators have risen, with both market and survey data showing this trend. Respondents generally believe that tariffs are a driving factor behind it. However, in the longer term, most inflation expectation indicators still align with our 2% target.

Monetary Policy

Our monetary policy has always been centered on achieving maximum employment and price stability. Currently, the labor market is close to maximum employment, and inflation remains elevated. Therefore, the Federal Open Market Committee (FOMC) has kept 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 continue to reduce our holdings of government bonds and agency mortgage-backed securities, and further slow down this balance sheet reduction process starting in April, in order to smoothly transition to a "ample reserves" state. In the future, we will still flexibly adjust our monetary policy stance based on the latest data, changes in the economic outlook, and risk balances.

The policy environment is still evolving, and its impact on the economy remains uncertain. The effect of tariffs will depend on their final levels. As of April, market expectations for tariff levels peaked and then retreated. Nevertheless, the additional tariffs this year are still expected to push up prices and exert some pressure on economic activity.

The impact of inflation may just be a one-time jump in price levels, but the possibility of more persistent inflation effects cannot be ruled out. Whether we can avoid the latter depends crucially on the extent of the impact of tariffs, the time required for this to be transmitted to prices, and whether we can effectively anchor long-term inflation expectations.

The FOMC's responsibility is to ensure that long-term inflation expectations remain stable, preventing one-time price increases from evolving into persistent inflation problems. In fulfilling this responsibility, we will balance the dual mandates of achieving maximum employment and price stability, while keeping in mind that without price stability, it is difficult to achieve a long-term strong labor market that benefits all Americans.

Currently, we believe we are in a favorable position to patiently wait for clearer signals regarding economic trends before deciding whether to adjust our policy stance.

Ultimately, we are keenly aware that our decisions impact communities, families, and businesses across the country. Everything we do is aimed at fulfilling our public mission. The Federal Reserve will make every effort to achieve the goals of maximum employment and price stability.

Thank you all, I am willing to answer your questions.