Federal Reserve Chair Jerome Powell testimony before two committees of the US Congress happens this week. On Tuesday, March 7, at 10 AM, ‘The committee on Banking, Housing, and Urban Affairs’ will meet in open session, hybrid format to conduct a hearing on ‘The Semiannual Monetary Policy Report to the Congress.’ On Wednesday, March 8, 2023, at 10:00 a.m. at the Rayburn House Office Building, the Committee on Financial Services will hold the hearing on the same report. The witness will be Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System who will testify to Congress.

Last week on Friday, in the Monetary Policy Report that it delivered to Congress, the Federal Reserve stated that more interest rate hikes would be required to restore price stability. As far as its battle against inflation is concerned, the report stated that although inflation has slowed down, it still remains well above the Federal Open Market Committee’s (FOMC) target of 2%.

The challenges for the US Fed appears to be on four major fronts –

One, the labor market remains extremely tight, with robust job gains, Secondly, the unemployment rate was at historically low levels, and thirdly, nominal wage growth was slowing but still elevated. Lastly, the real gross domestic product (GDP) growth picked up in the second half of 2022, although the underlying momentum in the economy likely remains subdued.

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Amidst these challenging macro factors, in the report, the US Fed was categorical about the ways to bring inflation down. “Bringing inflation back to 2 percent will likely require a period of below trend growth and some softening of labor market conditions,” is what the US Fed is perhaps aiming at.

The US Fed has been raising rates and from a near zero rate regime, the Federal funds rate today stands at 4.5%-4.75%. In effect, inflation in January 2023 was seen at 6.4% as against 6.5% witnessed in December but down from a peak of 9.1% seen in June 2022. To tame inflation, a robust job sector and a healthy consumer demand appears to be in the way of the US Fed and its inflation target of 2%. Till inflation gets near comfort zone for the Fed, the rate hikes may well continue.