Fed policy report flags strong economy, uncertain policy outlook

Fed notes stabilized and strong task market

Report flags raised financial appraisal levels

(Adds discuss performance, Fed policy rules)

By Michael S. Derby

Feb 7 (Reuters) - The Federal Reserve’s latest Monetary Policy Report to Congress, launched on Friday, was positive about the state of the economy but alerted about some worrying elements of the financial system.

The report, which comes ahead of next week’s testimony before Congress by Fed Chair Jerome Powell, said main bank authorities remain dedicated to getting inflation back to 2% and noted that when it pertains to rate of interest policy modifications officials “will thoroughly examine inbound data, the evolving outlook, and the balance of risks.”

The release explained the overall economy as succeeding in the middle of a strong and better-balanced task market and declining inflation pressures.

The Fed report said the monetary system is broadly speaking “sound and resistant.” But it also noted “appraisals remained high relative to principles in a variety of markets, including those for equity, corporate debt, and domestic genuine estate.”

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

The report did not appear to recommend any broad risk to the economy from the financial system and said that “credit continued to be broadly available” to mid-sized and big businesses, most households and regional governments. Credit was “fairly tight” for small firms and those with credit concerns.

When it pertains to overall loaning levels, setiathome.berkeley.edu overall financial obligation levels for families and non-financial firms “continued to trend down to a level that is extremely low relative to that in the past 20 years.”

The Monetary Policy Report, which comes twice yearly, was based on data available to the main bank as of Thursday. The report normally summarizes topics currently popular to Fed watchers and market individuals.

The report comes as the Fed faces a highly uncertain environment due to massive policy changes now contemplated or underway from President Donald Trump.

The main bank had the ability to lower its rates of interest target by a full percentage point in 2015 amidst easing inflation pressures. Future cuts, however, are extremely uncertain as Trump pursues trade and workforce policies that a lot of economic experts think will drive up inflation at a time when rate pressures remain above target. Some in the Fed have actually pointed straight at the government as a source of uncertainty limiting the guidance authorities can provide about the financial policy outlook.

The Fed report had actually about the prospects for Trump trade policies however did note “some market participants likewise pointed to possible boosts in U.S. tariffs on imports as an aspect pressing the dollar higher in current months.”

The release also said strong productivity may assist the economy grow quicker in the future without producing inflation pressures. The Fed found that emerging synthetic intelligence technology had not done much yet to goose efficiency however said the influence “may grow as AI utilize becomes more widespread.”

While the report didn’t have much assistance about the outlook for monetary policy, historydb.date it did acknowledge that the existing 4.25-4.50% federal funds target rate variety followed the level suggested by policy guidelines. Officials don’t use guidelines to set policy but see them as elements worth thinking about as they determine the ideal level for short-term rate of interest. (Reporting by Michael S. Derby