The Federal Reserve (FED) Semiannual Monetary Policy Report: Overview of Current Economic Situation and Monetary Policy

Source: Powell’s Speech

Jerome H. Powell, Chair of the Federal Reserve Board, on February 11, 2025, thanked Chairman Scott, senior member Warren, and other members of the Committee on Banking, Housing, and Urban Affairs of the United States Senate for the opportunity to present the Federal Reserve’s semiannual monetary policy report.

The Federal Reserve has always focused on achieving its dual mandate, which is to maximize employment and stabilize prices for the American people. Overall, the U.S. economy has performed strongly, making significant progress toward our goals over the past two years. Labor market conditions have cooled from the previous overheating state but remain robust. The inflation rate has significantly approached our long-term goal of 2%, although it is still slightly above that level. We are closely monitoring the risks facing both aspects of our dual mandate.

Before discussing monetary policy, let me review the current economic situation.

Recent data indicates that economic activity continues to expand steadily. Supported by resilient consumer spending, the Gross Domestic Product (GDP) grew by 2.5% in 2024. Although investment in equipment and intangible assets declined in the fourth quarter, the overall performance remained stable throughout the year. After experiencing a lull in the middle of last year, activity in the real estate market seems to have stabilized.

The labor market remains robust and tends towards stability. Over the past four months, an average of 189,000 new jobs has been created each month. After an earlier rise, the unemployment rate has remained stable since mid-last year, standing at 4% in January, still at a low level. Over the past year, nominal wage growth has slowed, and the gap between job vacancies and the workforce has also narrowed. Overall, a large number of indicators suggest that the labor market is roughly in a balanced state, and it is not a source of significant inflationary pressure. The strong labor market conditions in recent years have helped to narrow the long-standing gaps in employment and income among different groups.

In the past two years, the inflation rate has significantly decreased, but it is still slightly higher than the long-term target of 2%. For the 12 months ending in December, the Personal Consumption Expenditures (PCE) price index rose by 2.6%, and excluding the more volatile food and energy categories, the core PCE price index increased by 2.8%. Based on various surveys targeting households, businesses, and forecasting institutions, as well as relevant indicators from financial markets, long-term inflation expectations seem to remain stable.

Our monetary policy actions are guided by a dual mandate, aimed at promoting maximum employment and stable prices for the American people. Since September of last year, after maintaining the federal funds rate target range at 5.25% to 5.50% for 14 months, the Federal Open Market Committee (FOMC) has lowered the policy rate by a full percentage point from its peak. Given the progress made on inflation and the cooling of the labor market, it is appropriate to adjust our policy stance. At the same time, we are continuing to reduce our holdings of securities.

Given that the current policy stance is clearly less restrictive than before, and the economy remains strong, we do not need to rush to adjust the policy stance. We are aware that overly rapid or excessive loosening of policy restrictions may hinder progress in controlling inflation; however, at the same time, loosening policy restrictions too slowly or by too little may excessively weaken economic activity and employment. In considering the extent and timing of further adjustments to the target range for the federal funds rate, the Federal Open Market Committee will assess newly received data, the evolving economic outlook, and the balance of risks.

As the economic situation changes, we will adjust our policy stance in a way that is most conducive to maximizing employment and stabilizing prices. If the economy remains strong and the inflation rate fails to approach the 2% target sustainably, we may maintain policy restrictions for a longer period. If the labor market unexpectedly weakens, or if the inflation rate declines faster than expected, we will also relax policies accordingly. We are closely monitoring the two-sided risks facing our dual mandate, and the current policies are fully prepared to address the risks and uncertainties we face.

This year, we are conducting the second regular evaluation of our monetary policy strategies, tools, and communication methods, which is a framework used to achieve the maximum employment and stable price goals assigned to us by Congress. The focus of this evaluation is the Federal Open Market Committee’s “Statement on Longer-Run Goals and Monetary Policy Strategy” (which outlines the Committee’s monetary policy stance) and the Committee’s policy communication tools. The Committee’s long-term inflation target of 2% will remain unchanged and is not the focus of this evaluation.

Our assessment work will include communication and public activities with various parties, including the “Fed Listens” events held across the country, as well as a research conference in May. We will draw lessons from the past five years and adjust our strategies as appropriate to better serve the American public, for we are accountable to them. We plan to complete this assessment by the end of summer.

Finally, I want to emphasize that at the Federal Reserve, we will do our utmost to achieve the two goals set by Congress for monetary policy – maximizing employment and stabilizing prices. We are committed to supporting maximum employment, maintaining the inflation rate at a stable level of 2%, and stabilizing long-term inflation expectations. Our success in these goals is directly related to the interests of every American. We understand that our actions impact communities, families, and businesses across the country, and everything we do is to fulfill our public mission.

Thank you everyone, looking forward to your questions.