Federal Reserve Semi-Annual Report: Inflation Remains Elevated, M2 Money Supply Growth Moderate

Odaily Planet Daily News: The Federal Reserve released its semi-annual report, which indicated that the labor market is broadly stable, with "solid" nominal wage growth accompanied by "strong" productivity gains. Under reserve management purchase operations, bank reserves remain in the "ample" range. Long-term inflation expectations indicators are "broadly consistent" with the 2% target. Growth in the first quarter of 2026 was driven by high-tech investment and government spending, while labor supply growth slowed due to immigration slowdowns and demographic changes.

In the first half of 2026, external economic activity grew sluggishly, weighed down by headwinds from the Middle East conflict and US tariffs, partially offset by artificial intelligence investment. Inflation, which had been firm, accelerated further in the spring. Inflation remains elevated, driven mainly by tariffs, the Middle East war, and AI-related factors. M2 money supply growth was moderate, broadly similar to the typical growth rates of the 2010s. Small businesses and households continue to face relatively tight credit conditions.

The financial system remains "sound and resilient," with vulnerabilities unchanged. Despite elevated uncertainty due to the Iran war, economic activity continues to expand at a solid pace. Asset prices in equities, corporate debt, and residential real estate are higher than historical norms. (Jin Shi)