Monetary Policy and the State of the Economy (EventID=114952)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, June 23, 2022, at 10:00 a.m. (ET) full Committee Chairwoman Waters and Ranking Member McHenry will host a hybrid hearing entitled, “Monetary Policy and the State of the Economy." ___________________________________ Witness for this one-panel hearing will be: • The Honorable Jerome H. Powell, Chair of the Board of Governors of the Federal Reserve System Purpose and Background The Federal Reserve Act directs the Chairman of the Board of Governors (Board) of the Federal Reserve System (Federal Reserve or Fed) to testify before the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs twice a year on how the Board handles monetary policy and its observations on economic developments. Each appearance requires the Board to supply the committees with a written report known as the Monetary Policy Report. The Federal Reserve System consists of a 7-member Board of Governors and 12 Reserve Banks located in various regions around the country. The Fed’s functions include conducting monetary policy, promoting financial stability, supervising and regulating certain financial institutions, and fostering payments and settlements. The Board has seven Governors, including a Chair, a Vice Chair, and a Vice Chair for Supervision. Monetary policy decisions are made by the Federal Open Market Committee (FOMC), which is comprised of the Board, the president of the Federal Reserve Bank of New York, and an annual rotation of four of the remaining Reserve Bank presidents. Overall Economic Outlook, Inflation, and Monetary Policy Economic conditions and labor market recovery from the COVID-19 pandemic have shown remarkable strength. In May 2022, the Bureau of Labor Statistics (BLS) jobs report showed an additional 390,000 jobs were added to the economy while the unemployment rate continues to hold at 3.6 % for the third month in a row, just above the lowest level recorded in December 1969. Year-over-year wages for workers also grew by 5.2%, and labor force participation increased to 62.3%, though the labor force remains 1.1% smaller than pre-pandemic. Additionally, the May jobs report found broader representation in the labor market recovery, with employment-to-population ratios for prime-age workers and Black men are nearing or exceeding their pre-pandemic levels. Yet despite these positive signs, inequities persist with the national White unemployment rate dropping to its pre-pandemic level of 3.0% in Q1 of 2022 while during that same period the national Black unemployment rate remained elevated at 6.5% and the national Black-to-White unemployment ratio remains unchanged at 2.2 to 1.8 Inflation remains a persistent challenge to the COVID-19 economic recovery. Throughout 2021 and the first half of 2022, inflation measures have continued to exceed the Fed’s projections. Globally, countries are facing accelerated price growth and high levels of inflation, driven by high food and energy prices. Consumer prices in OECD countries rose year-on-year by 9.2% in April 2022 and nine OECD countries recorded double-digit inflation rates. Overall global inflation is forecasted to reach 7.9% in 2023 before dropping toward 5.0% in 2023. Chair Powell echoed this analysis in his June FOMC press conference remarks, attributing “the surge in prices of crude oil and other commodities that resulted from Russia’s invasion of Ukraine” and “COVID-related lockdowns in China...exacerbating supply chain disruptions” as the key external factors “boosting prices for gasoline and food” the surge in prices of crude oil and other commodities that resulted from Russia’s invasion of Ukraine” and “COVID-related lockdowns in China...exacerbating supply chain disruptions” as the key external factors “boosting prices for gasoline and food” In response, the FOMC has taken a series of increasing interest rate hikes intended to restore price stability by increasing borrowing costs to curb consumer demand. In March 2022, the Fed authorized a 0.25 percentage point interest rate increase–the first since December 2018–followed by a second, larger 0.5 percentage point rate hike in May 2022 bringing the target interest rate range for commercial banks to borrow and lend up to 0.75%-1%. At the May FOMC meeting, the Fed also announced plans to wind down its economic stimulus measures by reducing the size of its balance sheet by $30 billion per month for three months, then by $60 billion per month starting in September. The FOMC also signaled that they would consider six additional interest rate increases throughout the remainder of 2022 and another three in 2023. Hearing page: https://financialservices.house.gov/events/eventsingle.aspx?EventID=409519