Inflation in the US is well above target and the labor market remains very tight, the US Federal Reserve's recently published monetary policy report to Congress read, ahead of Chairman Jerome Powell's Capitol Hill testimony next week, per Reuters.

Key takeaways

"Bringing inflation down likely to require a period of below-trend growh, some softening of labor market conditions."

"Financial conditions have tightened further since January."

"Some indicators of future business defaults are somewhat elevated."

"Several major foreign central banks continued tightening, but also emphasized need to be cautious given lags and uncertainty."

"Core services ex-housing inflation has not shown signs of easing."

"Slowing inflation may depend in part on further easing of tight labor market."

"Outlook for funds rate is subject to considerable uncertainty."

"Will adjust pace of balance sheet contraction if needed."

"Bank credit conditions have tightened further since March."

"March banking system turmoil reportedly left an imprint on bank lending conditions, especially for mid-sized and small banks."

Market reaction

The US Dollar Index clings to modest recovery gains near 102.40 after this report.