Fed's Powell Says U.S

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Investors will be looking for new clues on US interest rate policy when Federal Reserve Chairman Jerome Powell speaks before the Economic Club of Washington on Thursday afternoon.

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.

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".

Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course.

In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of past year, with the lowest unemployment levels in a half-century and solid gains in wages.

The S&P 500 edged up 0.45 per cent on Thursday, while yields on Treasury securities were unchanged.

"If we find that the ongoing program of balance sheet normalization or any other aspect of normalization no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said.

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"The U.S. economy is solid", Mr. Powell said.

Speaking to an audience in Washington, Powell delivered the same reassuring message of restraint and flexibility that bolstered markets last Friday.

The Fed raised rates for a fourth time in 2018 at its December meeting and signaled that it would raise rates another two times in 2019. Minutes of the December meeting released on Wednesday showed that many officials felt the central bank "could afford to be patient about further policy firming", indicating the Fed could place interest rates on hold through March or longer as it waits for clarity on risks to global growth that could affect the US economy.

The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.

The Fed chief was also asked about the partial United States government shutdown. Markets have expressed concerns that the Fed's operations to reduce the balance sheet could be depressing the markets and ultimately slow growth. "The principal worry is global growth", he said. 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.

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

Even so, US central bankers face a challenging year that's complicating their communication.

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