Fed's Powell Says U.S

US official warns of recession risk if interest rates go much higher

He also said he would "be patient" as the central bank determines when to hike interest rates next.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months to see which of those two competing "narratives" plays out.

He downplayed predictions from policymakers suggesting interest rates would be raised twice more this year.

"Chairman Powell chose to make no news at his latest interview".

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of a year ago, with the lowest unemployment levels in a half-century and solid gains in wages. "The U.S. economy is solid". Those forecasts appear supported by a robust December labor-market report, which showed the economy added 312,000 non-farm jobs, the most in 10 months.

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost US$4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now.

"We would have a less clear picture into the economy if it were to go on much longer", Powell said.


Powell's comments on Fed patience were similar to the message in the minutes of the Fed's December meeting as well as the comments of other Fed officials this week.

Asked what qualifies for "normal", Powell said "I don't know the exact level."He noted that the balance sheet has declined to about $4 trillion, but that before the 2008 crisis it was below $1 trillion". "That was conditional on a very strong outlook for 2019", which may or may not materialize, with the Fed adjusting policy accordingly.

At the same time, Powell said there are concerns in financial markets about slowing global growth and rising trade tensions.

He agreed with the prevailing view of the United States economy slowing to around 2.25-2.5 per cent this year, with unemployment holding around the current 3.9 per cent.

In a speech Wednesday, Charles Evans, president of the Fed's Chicago regional bank, said that modest inflation allowed the Fed to "wait and carefully take stock of the incoming data and other developments" before deciding on future rate hikes. "The principal worry we have is global growth" in Asia, Europe and elsewhere.

While most previous shutdowns have been fairly short and have not affected the economy in the aggregate, Mr Powell said, "if we have an extended shutdown, I think that would show up in the data pretty clearly".

The Fed chief was also asked about the partial US government shutdown.

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