The latest monetary policy report from the Federal Reserve: Overall, the US economy is in good shape, with Trump's policies being a key variable.

The Federal Reserve released its latest "Monetary Policy Report" on Friday, expressing optimism about the US economic situation but also warning of some potential risks in the financial system. The report emphasizes that Fed officials remain committed to returning the inflation rate to the 2% target and states that when adjusting interest rate policies, officials will "carefully assess the latest data, changes in economic outlook, and risk balance." The report states that the overall economic situation in the US is good, the job market is strong and becoming more balanced, and inflation pressures have eased. In addition, the Fed states that the US financial system is "generally healthy and resilient." However, the report also points out that in multiple markets, including stocks, corporate debt, and residential real estate, asset valuations still exceed fundamentals. The report further warns that "valuation pressures have risen further from already elevated levels" and specifically highlights that "vulnerabilities related to financial leverage remain significant." Despite this, the report does not imply that the financial system poses a broad threat to the economy. Instead, the Fed believes that medium and large businesses, most households, and local governments can still access credit. However, the credit environment remains "relatively tight" for small businesses and borrowers with poor credit histories. The report shows that the total debt levels of households and non-financial firms continue to decline and are at a relatively low level in the past 20 years. This trend indicates that despite higher interest rates, the US economy still maintains stability in credit supply. This report is a routine document released twice a year by the Federal Reserve, based on data up to Thursday and summarizes economic dynamics that market participants and Fed observers are familiar with. At the time of the report's release, the Federal Reserve is facing a highly uncertain policy environment, mainly due to the large-scale policy adjustments that US President Trump is implementing or considering. With inflation pressures easing, the Fed successfully lowered its interest rate target by a full percentage point last year. However, there is still uncertainty about whether further rate cuts will occur, especially as Trump administration's trade and labor policies could potentially raise inflation, which currently remains above the Fed's target. Some Fed officials even point directly to the uncertainty of government policies, believing that this restricts the Fed from providing clearer forward guidance on monetary policy. Regarding trade policy, the report does not provide detailed comments but mentions that "some market participants point out that the expectation of the US raising import tariffs is one of the factors driving the recent strength of the US dollar." The report also mentions the potential economic impact of artificial intelligence (AI) technology. The Fed states that currently, the boost to productivity from AI is still limited, but its impact "may gradually strengthen with the widespread application of AI technology." Improving productivity growth helps the US economy achieve faster growth without triggering inflation pressures. Although this report does not provide much specific guidance on the outlook for monetary policy, it acknowledges that the current federal funds rate target range of 4.25%-4.50% is consistent with the level suggested by policy rules.