What Powell is saying

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

"We don't see those risks", the Fed leader said.

Speaking at the Economic Club of Washington, Powell reiterated that the USA central bank has the ability to be patient on monetary policy given stable price measures.

JPMorgan Chase has estimated that the partial government shutdown - which is 20 days old Thursday - is shaving $US1.5 billion off the economy each week, a modest amount in the context of a $US20 trillion economy, the damage will keep growing.

"The U.S. economy is solid", Mr. Powell said. There is good momentum going into this year. The principal worry is global growth, he said in questioning by David Rubenstein, the co-founder of private-equity firm Carlyle Group, where Powell was previously a partner. 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.

"It'll be substantially smaller than it is now. but nowhere near where it was before", Powell said of the balance sheet, which began shrinking in October 2017.

Stocks turned negative after the comments, with the Dow recently down about 35 points.

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". Reports like retail sales and GDP could be sidelined. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

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"We do not take political factors into consideration in our discussions or decisions at all".

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.

But when Rubenstein asked if he'd be happy to accept an invitation, Powell simply repeated: "I'm not aware of anyone not accepting it".

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the USA economy appears "solid", a slowdown in China "is a concern".

Recessions are typically caused by inflation rising quickly and forcing the Fed to respond with high interest rates or some sort of bubble in markets. Echoing remarks by Chairman Jerome Powell earlier in the day, Clarida said the Fed can afford to be patient in determining its monetary stance. "We're waiting and watching".

Powell's second appearance in less than a week generated a subdued response in financial markets, a sign he may have found his footing in how to describe central bank policy without surprising investors.

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