It’s great to be back in Rhode Island! The last time I spoke to the Greater Providence Chamber of Commerce was in fall 2019. Back then, I mentioned how policies would adapt if the economy shifted. We certainly saw that when the COVID-19 pandemic hit just months later.
This past few years have been challenging. The pandemic arrived right after the slow recovery from the Global Financial Crisis. We’ve faced two major crises in quick succession, leaving lasting impacts. Trust in government and economic systems has wavered. Public servants today must focus on their essential missions amid these challenges.
Central banks, like the Federal Reserve, had to rethink their strategies during these crises. Despite the turmoil, the U.S. economy has shown resilience compared to other advanced economies. We must learn from these tough experiences to navigate the future better.
As for today’s economy, recent data reveals a slowdown. The unemployment rate, while still low, ticked up. Job growth has slowed down, and inflation is creeping back. This shifting landscape prompted us to adjust our policy toward a more neutral stance.
In the first half of the year, GDP growth was around 1.5%, down from 2.5% last year. Consumer spending has slowed, affecting economic activity. The housing sector is struggling, but business investments have picked up, showing some signs of optimism. However, uncertainty continues to cloud businesses’ outlooks.
The job market is experiencing a unique slowdown. Both demand and supply of workers have decreased. The unemployment rate rose to 4.3% in August, but this level remains stable. Job creation has slowed significantly, with just 29,000 new jobs added monthly on average over the past three months. This is below the breakeven point needed to maintain the current unemployment rate. Despite this, some indicators, like job openings, remain stable.
Inflation has decreased from its peaks in 2022 but still falls short of our ideal 2% target. Total PCE prices rose 2.7% over the past year, and core PCE prices rose 2.9%. Much of the recent inflation seems tied to tariffs rather than broad price increases. Consumer expectations around inflation have also shifted, reflecting worries about tariffs and rising costs.
Looking ahead, the long-term effects of changes in trade, immigration, and regulatory policies are uncertain. Many experts believe that tariff-induced price hikes might only be temporary. The full impact will take time to materialize, leading to steady inflation over several quarters.
But there’s still much uncertainty regarding inflation’s trajectory. We need to manage the risk of rising prices carefully. It’s crucial that any temporary increases don’t lead to lasting inflationary pressures.
Our monetary policy faces a tough balancing act. Immediate inflation risks are rising, while employment risks are falling—creating a complicated scenario. If we act too quickly, we might make inflation worse; if we hesitate, we could hurt the job market. Our recent decision was to lower the federal funds rate slightly to 4 to 4.25%. This keeps us ready to respond to economic changes while remaining somewhat restrictive.
We are not bound to a fixed path. We’ll adjust based on the latest data and evolving economic conditions. Our commitment to maximizing employment and achieving sustainable inflation is vital. Our actions impact families and businesses nationwide.
Thanks for your time today. I’m eager for our discussion ahead!
For further insights on economic policies, you can check [Federal Reserve resources](https://www.federalreserve.gov/newsevents/speech/powell20191125a.htm).
