The US economy is growing at a solid pace
“The U.S. economy grew at a solid pace last year and enters 2026 on a strong footing. (…) Available indicators suggest that economic activity is growing at a solid pace. Consumer spending is resilient and business investment in fixed assets continues to grow,” the Fed chairman said.
“In turn, activity in the housing sector remains weak. The temporary suspension of federal government activities likely negatively impacted economic activity in the last quarter, but these effects are expected to reverse as the opening of the economy stimulates economic growth this quarter,” he added.
There are some signs of stabilization in the US labor market
“In the labor market, indicators suggest that conditions may be stabilizing after a period of gradual easing. The unemployment rate was 4.4% in December and has changed little in recent months. Employment growth remains subdued. Other indicators, such as job vacancies, layoffs, growth and nominal wage growth, have shown little change in recent months,” the Fed chairman said.
“The high PCE inflation readings largely reflect growth in the goods sector, boosted by the impact of tariffs. Meanwhile, the downward trend appears to continue in the services sector. The decline from last year's highs, reflected in market research and long-term indicators, remains in line with our 2% inflation target.” – he added.
There was broad support within the FOMC for the decision regarding interest rates.
“There was broad support in the Committee for today's decision. Wide, I would say, even among people who did not vote for the decision. Of course, some wanted cuts and supported them, but the Committee's support was quite broad in its position for today's decision. We are not trying to formulate questions about when to make another reduction or whether to make it at the next meeting. We are saying that we are in a good position because we make decisions from meeting to meeting, analyzing incoming data, changing prospects,” said the Fed chairman.
“We still have some tension between employment and inflation, but it is less than it was. I think both the risks to GDP growth and the decline in inflation have probably eased a little bit. It's about how to weigh the risks for both goals and how big they are, and how to quantify them, so there are different views within the Committee, and we will find a way forward as the situation develops and as the data comes in,” he added.
The recent increase in US inflation is mainly due to tariffs
“Basically, there are many different estimates, and all of them are highly uncertain, but most of the overshoot in terms of commodity price increases is due to tariffs. That's actually good news because if it weren't for tariffs, it could mean it's demand-driven, and that's a difficult problem to solve. We think tariffs are likely to be implemented and will be a one-off price increase,” the Fed chairman said.
“The other good news is that if we look not at goods but at services, we will see ongoing disinflation across all service categories, which is a good trend. The impact of tariffs on goods prices is expected to peak and then begin to decline, assuming there are no new, large tariff increases. This is what we expect over the course of this year. If we see this, it will be a signal that we can loosen monetary policy,” he added.
(PAP Business)
