Fed Monetary Policy Report Flags Solid Economy, Raised Markets

Fed policy report flags solid economy, uncertain policy outlook

Fed keeps in mind stabilized and strong task market

Report flags raised financial appraisal levels

(Adds talk about performance, Fed policy rules)

By Michael S. Derby

Feb 7 (Reuters) – The Federal Reserve’s most current Monetary Policy Report to Congress, released on Friday, was upbeat about the state of the economy however cautioned about some concerning elements of the monetary system.

The report, which comes ahead of next week’s statement before Congress by Fed Chair Jerome Powell, said main bank officials remain dedicated to getting inflation back to 2% and kept in mind that when it pertains to rates of interest policy modifications officials „will carefully assess inbound data, the developing outlook, and the balance of threats.“

The release explained the overall economy as succeeding amid a strong and better-balanced job market and declining inflation pressures.

The Fed report said the financial system is broadly speaking „sound and resistant.“ But it likewise kept in mind „appraisals remained high relative to fundamentals in a variety of markets, including those for equity, corporate debt, and residential realty.“

It likewise said „appraisal pressures increased rather from currently high levels“ while flagging that „vulnerabilities associated with financial leverage remained notable.“

The report did not appear to suggest any broad risk to the economy from the monetary system and said that „credit continued to be broadly available“ to mid-sized and large organizations, many households and city governments. Credit was „fairly tight“ for small firms and those with credit concerns.

When it pertains to overall loaning levels, total debt levels for households and non-financial companies „continued to trend down to a level that is very low relative to that in the previous 20 years.“

The Monetary Policy Report, which comes twice annual, was based upon information available to the main bank since Thursday. The report usually sums up topics already well known to Fed watchers and market individuals.

The report comes as the Fed deals with an extremely uncertain environment due to large-scale policy changes now pondered or underway from President Donald Trump.

The main bank was able to reduce its interest rate target by a complete percentage point in 2015 amidst reducing inflation pressures. Future cuts, nevertheless, are extremely uncertain as Trump pursues trade and labor force policies that most economists believe will increase inflation at a time when price pressures remain above target. Some in the Fed have actually pointed straight at the federal government as a source of uncertainty restricting the guidance officials can provide about the financial policy outlook.

The Fed report had actually restricted remarks on the prospects for wolvesbaneuo.com Trump trade policies but did keep in mind „some market individuals likewise indicated prospective boosts in U.S. tariffs on imports as an aspect pressing the dollar higher in current months.“

The release likewise said strong productivity might help the economy grow quicker in the future without creating inflation pressures. The Fed found that emerging artificial intelligence technology had not done much yet to goose productivity however said the impact „might grow as AI use becomes more extensive.“

While the report didn’t have much guidance about the outlook for policy, it did acknowledge that the present 4.25-4.50% federal funds target rate range was constant with the level recommended by policy guidelines. Officials do not utilize guidelines to set policy however see them as aspects worth considering as they determine the ideal level for short-term rates of interest. (Reporting by Michael S. Derby; Editing by Andrea Ricci)