Economic and Monetary Policy Forecast

ood morning to everyone, and a warm welcome to the Federal Reserve district. I am pleased to have the chance to speak with you today at the Asset Management Derivatives Forum on the state of the U.S. economy and our monetary policy. Given the nature of this conference and your interests, I will also delve into recent updates related to our monetary policy implementation. I am looking forward to engaging in a productive discussion with all of you. It is essential to clarify that the views expressed in this speech are my own and may not necessarily reflect those of my colleagues at the Federal Reserve.

The Federal Open Market Committee (FOMC) holds the responsibility of setting monetary policy to achieve both price stability and maximum employment, as mandated by Congress. The FOMC’s strategy aims to strike a balance in pursuing these dual objectives, particularly during periods where they diverge from the Committee’s long-term goals.

In the previous year, the FOMC opted to maintain the fed funds target range in January after three consecutive rate cuts in 2025. I supported this decision, considering the potential risks of elevated inflation associated with the rate reductions.

Following the government shutdown last fall, data trends have shown signs of the labor market stabilizing while diminishing downside risks. Although job growth decelerated in the first half of 2025 due to various factors like immigration policy changes and decreased labor demand, job gains have maintained a stable level since mid-year. Unemployment rates have also exhibited a slight decline, settling at 4.4 percent in December, close to estimates of full employment.

The economy has witnessed a robust recovery since the initial half of last year, propelled by strong consumer spending and business investments. Third-quarter Real GDP growth stood at an impressive 4.4 percent, with projections indicating continued growth in the final quarter despite temporary slowdowns from the government shutdown.

In terms of inflation, the headline personal consumption expenditures (PCE) price inflation slightly increased to 2.8 percent for the 12 months ending in November 2025. Notably, this figure has surpassed the Committee’s 2 percent price stability benchmark for almost five years.

Under these circumstances, maintaining steady rates in the initial meeting of the year was a prudent choice, in my opinion. Looking ahead, I anticipate progress regarding inflation throughout the year. Tariff-related price pressures on goods inflation are expected to diminish, and trends suggest a slowdown in housing services inflation. Moreover, a balanced labor market should alleviate core non-housing services inflation pressures.

While there are preliminary signs of improvement, caution is warranted as inflation might not necessarily return to the 2 percent target in the near term. Factors such as the lingering effects of tariffs on prices, stagnant core non-housing services inflation, and potential spikes in headline inflation from rising costs and strong demand pose challenges to achieving price stability.

Additionally, economic activity faces uncertainties due to potential risks that could impede progress. Fiscal policies supporting investments and spending, advantageous financial conditions, and the impacts of deregulation and emerging technologies could influence price stability. Determining the restrictiveness of current monetary policies is also complex, given the evolving nature of real-time data.

In conclusion, while there are positive economic indicators and progress on various fronts, it is essential to remain vigilant in managing uncertainties and addressing potential risks to ensure a stable and sustainable economic environment. Thank you for your attention, and I look forward to engaging further with you during the discussions ahead.