While largely a retrospective summary of economic developments and the Federal Reserve’s policy meetings, the report offers some indication that the central bank expects consumer spending growth to soften as As the year progresses and households consume the savings from the pandemic.
“Household spending fundamentals… appear to be somewhat less supportive of spending growth,” the report said, noting that even with wages rising at a robust pace, the influence of rising prices and end of the pandemic and other transfer payments meant inflation-adjusted after-tax income declined 1.4% in 2022.
Consumer confidence “remains very low,” according to the report. But overall, he reiterated the themes that now dominate the Fed debate: an “extremely tight” labor market, economic growth that likely needs to slow, a financial system that has absorbed rate hikes largely smoothly, and a inflation that, despite everything, remains “well above the objective of the Federal Open Market Committee (FOMC)”.
“In response…the FOMC continued to rapidly raise interest rates and reduce its security holdings,” the report says, and also “anticipates that continued increases in the target range will be appropriate.”
Federal Reserve Chairman Jerome Powell will discuss the report and Federal Reserve policy in two consecutive appearances before Congress next week, on Tuesday and Wednesday.
