Fed Chair Powell's statement on meeting interest rate targets and the economic outlook

Powell stated that the Fed has made significant progress over the past year in achieving maximum employment and price stability for the American people.

Emphasizing that while inflation remains above the Federal Open Market Committee's (FOMC) 2 percent target, it has decreased significantly, and that this slowdown in inflation has occurred without a significant increase in unemployment, Powell assessed, "As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are moving into better balance."

Powell noted, however, that the FOMC remains highly attentive to inflation risks, adding that the Committee is aware that high inflation creates significant hardships for those who cannot afford the high costs of essential items, particularly food, housing, and transportation.

EMPHASIZED DETERMINATION TO BRING INFLATION TO TARGET

Expressing that the Committee has a strong commitment to returning inflation to its 2 percent target, Powell stated that restoring price stability is necessary for sustainable strong labor market conditions.

Powell mentioned that economic activity grew at a strong pace last year, recalling that for the full year 2023, gross domestic product increased by 3.1 percent, supported by strong consumer demand and improving supply conditions.

Stating that activity in the housing sector weakened last year largely due to high mortgage interest rates, Powell mentioned that high interest rates have also put pressure on fixed business investment.

Powell noted that the labor market remains relatively tight but that supply and demand conditions continue to better balance, with employment increasing by an average of 239 thousand per month since the middle of last year and the unemployment rate remaining near historic lows at 3.7 percent.

Pointing out that labor demand still exceeds the available supply of workers, Powell stated that the strong labor market of the past two years has also helped reduce long-standing disparities in employment and earnings across demographic groups.

Emphasizing that inflation decreased "significantly" last year, Powell stated that personal consumption expenditures prices rose 2.4 percent annually in January, and core prices rose 2.8 percent, noting that this represents a notable slowdown in both goods and services prices compared to 2022.

Stating that they have significantly tightened the stance of monetary policy since the beginning of 2022, Powell noted that the FOMC has kept the federal funds rate target in the 5.25-5.50 percent range since its meeting last July.

"RESTRICTIVE STANCE WILL CREATE DOWNWARD PRESSURE"

Stating that they continue to reduce the bank's balance sheet in a rapid and predictable manner, Powell noted that the restrictive stance in monetary policy is creating downward pressure on economic activity and inflation.

Reiterating their belief that the policy rate is likely at its peak in the tightening cycle, Powell assessed, "If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and continued progress toward our 2 percent inflation goal is not assured."

Pointing out that reducing policy restraint too early or too much could cause a reversal of progress on inflation, Powell warned that this could result in even tighter policies being required to return inflation to 2 percent.

Powell said that reducing policy restraint too late or too little could also weaken economic activity and employment more than necessary.

Stating that they will carefully evaluate incoming data, the evolving outlook, and the balance of risks when considering any adjustments to the policy rate, Powell reiterated that they do not expect it will be appropriate to reduce the policy rate until they have gained greater confidence that inflation is moving sustainably toward 2 percent.