Fed "acutely aware" of trouble inflation is causing - report

By Howard Schneider WASHINGTON, March 3 (Reuters) - The U.S. Federal Reserve is "acutely aware" of the challenges high inflation poses to the economy and is "strongly committed" to its 2% target for price increases, the central bank said on Friday in its latest semiannual report to Congress on monetary policy and the economy. The document, largely a backward-looking summary of recent economic developments and Fed policy meetings, noted what have become the dominant themes for Fed debate - a labor market where workers remain in short supply, economic growth that likely needs to slow further to temper price hikes, and inflation that remains "well above the Federal Open Market Committee's objective." "In response...the FOMC continued to rapidly increase interest rates and reduce its securities holdings," the report said, and also "anticipates that ongoing increases in the target range will be appropriate." The document noted that U.S. financial conditions have tightened since the Fed's last report to Congress in June, and hinted that the impact of monetary policy was intensifying in some corners of the economy. Business loans by banks grew through 2022 "but decelerated in the fourth quarter," the report said. "Some indicators of future business defaults are somewhat elevated." Household loan delinquency rates were rising, and mortgage issuance "continued to decline materially."

Fed Chair Jerome Powell will discuss the report and Fed policy in back-to-back congressional hearings next week, appearing at 10 a.m. EST Tuesday before the Senate Banking Committee and Wednesday at 10 a.m. before the House Financial Services Committee. It will be Powell's first testimony since the Republican party took control of the House after the November midterm elections.
(Reporting by Howard Schneider; Editing by Andrea Ricci)