MNI POLICY: Text of Fed Chair Powell's Testimony To Congress

     WASHINGTON (MNI) - The following is the text of Federal Reserve Chairman

Jerome Powell's testimony before the House Financial Services Committee, set to

be delivered at 10:00 am ET Wednesday:

     Chairwoman Waters, Ranking Member McHenry, and other members of the

Committee, I am pleased to present the Federal Reserve's semiannual Monetary

Policy Report to Congress.

     Let me start by saying that my colleagues and I strongly support the goals

of maximum employment and price stability that Congress has set for monetary

policy. We are committed to providing clear explanations about our policies and

activities. Congress has given us an important degree of independence so that we

can effectively pursue our statutory goals based on objective analysis and data.

We appreciate that our independence brings with it an obligation for

transparency so that you and the public can hold us accountable.

     Today I will review the current economic situation and outlook before

turning to monetary policy. I will also provide an update of our ongoing public

review of our framework for setting monetary policy.

     Current Economic Situation and Outlook

     The economy performed reasonably well over the first half of 2019, and the

current expansion is now in its 11th year. However, inflation has been running

below the Federal Open Market Committee's (FOMC) symmetric 2 percent objective,

and crosscurrents, such as trade tensions and concerns about global growth, have

been weighing on economic activity and the outlook.

     The labor market remains healthy. Job gains averaged 172,000 per month from

January through June. This number is lower than the average of 223,000 a month

last year but above the pace needed to provide jobs for new workers entering the

labor force. Consequently, the unemployment rate moved down from 3.9 percent in

December to 3.7 percent in June, close to its lowest level in 50 years. Job

openings remain plentiful, and employers are increasingly willing to hire

workers with fewer skills and train them. As a result, the benefits of a strong

job market have been more widely shared in recent years. Indeed, wage gains have

been greater for lower-skilled workers. That said, individuals in some

demographic groups and in certain parts of the country continue to face

challenges. For example, unemployment rates for African Americans and Hispanics

remain well above the rates for whites and Asians. Likewise, the share of the

population with a job is higher in urban areas than in rural communities, and

this gap widened over the past decade. A box in the July Monetary Policy Report

provides a comparison of employment and wage gains over the current expansion

for individuals with different levels of education.

     Gross domestic product increased at an annual rate of 3.1 percent in the

first quarter of 2019, similar to last year's pace. This strong reading was

driven largely by net exports and inventories-components that are not generally

reliable indicators of ongoing momentum. The more reliable drivers of growth in

the economy are consumer spending and business investment. While growth in

consumer spending was weak in the first quarter, incoming data show that it has

bounced back and is now running at a solid pace. However, growth in business

investment seems to have slowed notably, and overall growth in the second

quarter appears to have moderated. The slowdown in business fixed investment may

reflect concerns about trade tensions and slower growth in the global economy.

In addition, housing investment and manufacturing output declined in the first

quarter and appear to have decreased again in the second quarter.

     After running close to our 2 percent objective over much of last year,

overall consumer price inflation, measured by the 12-month change in the price

index for personal consumption expenditures (PCE), declined earlier this year

and stood at 1.5 percent in May. The 12-month change in core PCE inflation,

which excludes food and energy prices and tends to be a better indicator of

future inflation, has also come down this year and was 1.6 percent in May.

     Our baseline outlook is for economic growth to remain solid, labor markets

to stay strong, and inflation to move back up over time to the Committee's 2

percent objective. However, uncertainties about the outlook have increased in

recent months. In particular, economic momentum appears to have slowed in some

major foreign economies, and that weakness could affect the U.S. economy.

Moreover, a number of government policy issues have yet to be resolved,

including trade developments, the federal debt ceiling, and Brexit. And there is

a risk that weak inflation will be even more persistent than we currently

anticipate. We are carefully monitoring these developments, and we will continue

to assess their implications for the U.S economic outlook and inflation.

     The nation also continues to confront important longer-run challenges.

Labor force participation by those in their prime working years is now lower in

the United States than in most other nations with comparable economies. As I

mentioned, there are troubling labor market disparities across demographic

groups and different parts of the country. The relative stagnation of middle and

lower incomes and low levels of upward mobility for lower-income families are

also ongoing concerns. In addition, finding ways to boost productivity growth,

which leads to rising wages and living standards over the longer term, should

remain a high national priority. And I remain concerned about the longer-term

effects of high and rising federal debt, which can restrain private investment

and, in turn, reduce productivity and overall economic growth. The longer-run

vitality of the U.S. economy would benefit from efforts to address these issues.

     Monetary Policy

     Against this backdrop, the FOMC maintained the target range for the federal

funds rate at 2-1/4 to 2-1/2 percent in the first half of this year. At our

January, March, and May meetings, we stated that we would be patient as we

determined what future adjustments to the federal funds rate might be

appropriate to support our goals of maximum employment and price stability.

     At the time of our May meeting, we were mindful of the ongoing

crosscurrents from global growth and trade, but there was tentative evidence

that these crosscurrents were moderating. The latest data from China and Europe

were encouraging, and there were reports of progress in trade negotiations with

China. Our continued patient stance seemed appropriate, and the Committee saw no

strong case for adjusting our policy rate.

     Since our May meeting, however, these crosscurrents have reemerged,

creating greater uncertainty. Apparent progress on trade turned to greater

uncertainty, and our contacts in business and agriculture report heightened

concerns over trade developments. Growth indicators from around the world have

disappointed on net, raising concerns that weakness in the global economy will

continue to affect the U.S. economy. These concerns may have contributed to the

drop in business confidence in some recent surveys and may have started to show

through to incoming data.

     In our June meeting statement, we indicated that, in light of increased

uncertainties about the economic outlook and muted inflation pressures, we would

closely monitor the implications of incoming information for the economic

outlook and would act as appropriate to sustain the expansion. Many FOMC

participants saw that the case for a somewhat more accommodative monetary policy

had strengthened. Since then, based on incoming data and other developments, it

appears that uncertainties around trade tensions and concerns about the strength

of the global economy continue to weigh on the U.S. economic outlook. Inflation

pressures remain muted.

     The FOMC has made a number of important decisions this year about our

framework for implementing monetary policy and our plans for completing the

reduction of the Fed's securities holdings. At our January meeting, we decided

to continue to implement monetary policy using our current policy regime with

ample reserves, and emphasized that we are prepared to adjust any of the details

for completing balance sheet normalization in light of economic and financial

developments. At our March meeting, we communicated our intention to slow,

starting in May, the decline in the Fed's aggregate securities holdings and to

end the reduction in these holdings in September. The July Monetary Policy

Report provides details on these decisions.

     The July Monetary Policy Report also includes an update on monetary policy

rules. The FOMC routinely looks at monetary policy rules that recommend a level

for the federal funds rate based on inflation and unemployment rates. I continue

to find these rules helpful, although using these rules requires careful

judgment.

     We are conducting a public review of our monetary policy strategy, tools,

and communications-the first review of its kind for the FOMC. Our motivation is

to consider ways to improve the Committee's current policy framework and to best

position the Fed to achieve maximum employment and price stability. The review

has started with outreach to and consultation with a broad range of people and

groups through a series of Fed Listens events. The FOMC will consider questions

related to the review at upcoming meetings. We will publicly report the outcome

of our discussions.

     Thank you. I am happy to respond to your questions.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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