Federal Reserve Chairman Jerome Powell presented the semiannual Monetary Policy Report before the House Financial Services Committee on February 12, 2025. His speech focused on economic developments, the labor market, inflation trends, and the Fed’s monetary policy outlook.
Current Economic Situation:
- The U.S. economy remains strong, with GDP growing by 2.5% in 2024, driven by robust consumer spending.
- The labor market is stable, adding 189,000 jobs per month over the past four months, while the unemployment rate remained at 4%.
- Inflation is declining but still above target, as the Personal Consumption Expenditures (PCE) Index recorded 2.6% in the 12 months ending in December, while core PCE inflation (excluding food and energy) stood at 2.8%.
- Powell noted that the labor market is no longer a major driver of inflationary pressures, and conditions have become more balanced.
Monetary Policy & Future Outlook:
- The Fed lowered interest rates by a full percentage point since September 2024, after keeping them at 5.25%-5.50% for 14 months.
- Future rate decisions will depend on economic data, as Powell emphasized that the Fed will avoid cutting rates too quickly to prevent an inflation resurgence but will also act to support the economy if necessary.
- He also highlighted that the Fed is continuing to reduce its bond holdings, as part of its gradual monetary tightening strategy.
Review of Monetary Policy Strategy:
- Powell announced that the Fed has begun a periodic review of its monetary policy strategies and tools to ensure price stability and employment growth.
- The 2% inflation target will remain unchanged, but the review will focus on monetary policy instruments and communication strategies.
- The review is expected to conclude by summer 2025, following public consultations and research conferences evaluating past policy performance.
Key Takeaways from Powell’s Speech:
✔ The economy is strong, the labor market is stable, but inflation remains slightly above the target.
✔ Rate cuts are being implemented cautiously, and further adjustments will depend on economic conditions.
✔ A comprehensive review of the Fed’s strategy will conclude by summer to enhance monetary policy tools.
🗣 Do you think the Fed will continue cutting interest rates this year, or will it maintain them for longer? Share your thoughts!
