Federal Reserve's Powell: Longer US government shutdown will hit economy

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

Bullard Warns of a U.S. Recession If Fed Keeps Raising RatesMore

In an interview at the Economic Club of Washington, Powell echoed other Fed officials' comments and said inflation was low, and under control, and that the central bank could afford to be patient and flexible with its monetary policy going forward.

Many business leaders remain optimistic about the USA economy this year, despite higher interest rates and large swings in the stock market.

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.

US central bankers are refining their message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

While he has near weekly meetings with Treasury Secretary Steven Mnuchin, Powell said he has not met with Trump since taking over as Fed chairman, nor does he have any meetings with the president scheduled.

A key measure of USA inflation was little changed in December while falling energy prices dragged down the broader gauge, giving the Federal Reserve little urgency to raise interest rates soon as it signals a more cautious approach in 2019.

He also said that the Fed had no preset path for rate hikes and would be "patient" when determining whether to hike interest rates further in response to strong US growth that risks sparking inflation, or to pause rate hikes to account for a global economic slowdown.

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Trump has urged the Fed not to raise interest rates at all this year.

"Especially with inflation low and under control we have the ability to be patient and watch patiently and carefully as we. figure out which of these two narratives is going to be the story of 2019", Powell said when asked at the Economic Club of Washington about December forecasts from Fed policymakers showing they expect a median of two more rate hikes in 2019, after four past year.

The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said.

That could support consumer spending, which accounts for about 70 percent of the US economy, at a time when the outlook is dimming for companies in a variety of industries.

Those holdings are being reduced slowly as the securities mature, dropping by about $50 billion per month, and now stand around $4 trillion, down from a high around $4.5 trillion. He said the Fed's aim was to return the balance sheet to a "more normal level" but didn't specify what that level will be.

"There is no pre-set path for rates. particularly now", he said.

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