Powell Says Fed Is 'Waiting and Watching' With Patience on Rates

GS financial conditions index

While those initial comments boosted stocks, they later slipped when Powell said the Fed would shed significantly more assets than it already has.

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

USA stocks initially turned lower after Powell said the central bank is sticking with its process of shrinking its balance sheet to a more normal level, which removes stimulus put into place to revive the economy following the financial crisis and recession a decade ago.

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.

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. There is good momentum going into this year.

The central bank's vice chairman, Richard Clarida, said later on Thursday that if the global slowdown and tightening of financial markets persists, the Fed would take policy steps to offset that.

"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.

"It will be substantially smaller than it is now", Powell said.

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In contrast, his remarks in his three previous appearances since late November moved stocks an average of 2.4 per cent in either direction, and his comments last Friday spurred the largest market reaction yet to any of his 17 public appearances since taking office last February.

"I would expect them to repeat that the economy is strong", Scotiabank economist Derek Holt said. Reports like retail sales and GDP could be sidelined.

President Donald Trump has been a vocal critic of Powell.

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".

Since then, stock markets endured a topsy-turvy end to the year as the USA government shut down and global trade tensions ratcheted higher.

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. "We're waiting and watching".

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job. The Fed chief will be in focus again this afternoon as he fields questions at the Economic Club of Washington.

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