Fed Chair Jerome Powell Testifies Before Senate: Key Insights on Inflation, Jobs, and Monetary Policy

On February 11, 2025, Federal Reserve Chair Jerome H. Powell delivered the Semiannual Monetary Policy Report to the Senate Banking, Housing, and Urban Affairs Committee. This testimony is a pivotal event, offering insights into the Federal Reserve's assessment of the U.S. economy and its future policy directions.

Economic Overview

Chair Powell began by highlighting the U.S. economy's continued solid expansion. He noted that while Gross Domestic Product (GDP) growth moderated in the first half of the year, private domestic demand remained robust. Consumer spending saw slower yet solid increases, and there was moderate growth in capital spending alongside a resurgence in residential investment. Improved supply conditions have supported this resilient demand, contributing to the economy's strong performance over the past year.

Labor Market Dynamics

The labor market has returned to conditions reminiscent of the pre-pandemic era: strong but not overheated. The unemployment rate rose slightly to 4.1% in June, yet remains low. Payroll job gains averaged 222,000 per month in the first half of the year. Increased labor force participation among individuals aged 25 to 54 and a strong pace of immigration have expanded the workforce. Consequently, the gap between available jobs and workers has narrowed, now slightly above its 2019 level. Nominal wage growth has eased over the past year, and the robust labor market has helped reduce long-standing disparities in employment and earnings across demographic groups.

Inflation Trends

Inflation has notably decreased over the past two years but remains above the Federal Reserve's 2% target. Total Personal Consumption Expenditures (PCE) prices rose by 2.6% over the 12 months ending in May, with core PCE prices (excluding food and energy) also increasing by 2.6%. After limited progress toward the 2% inflation objective earlier in the year, recent monthly readings indicate modest further advancement. Long-term inflation expectations appear well-anchored, as reflected in various surveys and financial market measures.

Monetary Policy Approach

The Federal Reserve remains committed to its dual mandate: promoting maximum employment and stable prices. Since July of the previous year, the Federal Open Market Committee (FOMC) has maintained the target range for the federal funds rate at 5.25% to 5.5%, following significant tightening over the prior 18 months. The Fed has also continued reducing its securities holdings, slowing the pace of balance sheet runoff starting in June, as previously planned. This restrictive monetary policy stance aims to balance demand and supply conditions and exert downward pressure on inflation.

The Committee has stated that it does not anticipate reducing the target range for the federal funds rate until there is greater confidence that inflation is moving sustainably toward 2%. While first-quarter data did not support such confidence, more recent inflation readings have shown modest progress. Additional positive data would strengthen the Fed's confidence in achieving its inflation goal.

Decisions are made on a meeting-by-meeting basis, carefully assessing incoming data and their implications for the economic outlook, risks, and the appropriate path of monetary policy. The Fed acknowledges that reducing policy restraint too soon could reverse progress on inflation, while delaying adjustments could unduly weaken economic activity and employment.

Commitment to Mandate

Congress has granted the Federal Reserve operational independence to take a long-term perspective in pursuing its dual mandate. The Fed remains committed to bringing inflation back to the 2% goal and keeping long-term inflation expectations well-anchored. Restoring price stability is essential for achieving maximum employment and stable prices over the long run.

Public Impact

Chair Powell emphasized that the Federal Reserve's actions affect communities, families, and businesses nationwide. Every decision is made in service to its public mission, underscoring the importance of clear communication and transparency in monetary policy.

Conclusion

Chair Powell's testimony provided a comprehensive overview of the U.S. economy's current state and the Federal Reserve's policy considerations. The emphasis on data-driven decision-making and the commitment to the dual mandate reflect the Fed's dedication to fostering a healthy economic environment. As the economy evolves, the Federal Reserve's policies will continue to adapt, aiming to balance growth, employment, and price stability.