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On Friday, June 16 the Fed released the semiannual monetary policy report to Congress. The report is inclusive of data available through 16:00 ET on June 14. As such it doesn\u2019t include the May data on retail sales, jobless claims for the week ended June 10, the import and export price indexes, or the University of Michigan consumer sentiment index. Policymakers have access to the data on industrial production since that is produced by the Federal Reserve. These reports don\u2019t really change the picture painted by the data which is one of a still tight labor market and inflation at the core which is mainly in non-housing services.<\/p>\n\n\n\n
The monetary policy report serves as a template for the Fed Chair\u2019s prepared remarks before each of the Congressional committees at which the semiannual monetary policy is delivered. For this round, summer testimony begins at 10:00 ET before the House Financial Services Committee and resumes at 10:00 ET before the Senate Banking Committee. Although not on the official schedule, it is typical for the Fed to release the prepared remarks at 8:30 ET when the House committee leads the rotation.<\/p>\n\n\n\n
While the monetary policy is a product of the Board of Governors and issued by it, the contents will be heavily informed by the most recent FOMC meeting of June 13-14.<\/p>\n\n\n\n
The central points of the summary in the report are two. First is, \u201cBringing inflation back to 2 percent will likely require a period of below trend growth and some softening of labor market conditions.\u201d Second is, \u201cThe Federal Reserve is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials. The FOMC is strongly committed to returning inflation to its 2 percent objective.\u201d<\/p>\n\n\n\n
As was the case when Chair Jerome Powell delivered the February testimony, he is likely to get hammered on the potential for job losses in the millions if the FOMC persists in keeping monetary policy restrictive. After the upward revision in the FOMC median forecast for the fed funds target range by about 50 basis points for 2023, he will hear even more about the harm that higher rates does to individuals and businesses. The implication is that the Fed is callously endangering the livelihood of Americans by cutting off credit to individuals and businesses.<\/p>\n\n\n\n
Powell will probably reply along the lines of what he said in February and has reiterated since as recently as his press briefing on June 14. He said, \u201cWithout price stability, the economy doesn\u2019t work for anyone.\u201d The Federal Reserve has essentially one tool to fight inflation: raising interest rates \u2014 to lower demand and cool the economy. To imply that the central bank should not use it to achieve its Congressional mandate of price stability is disingenuous at best. The Fed would fight inflation without job losses if it could, but its options are limited.<\/p>\n\n\n\n