USA official warns of recession risk if interest rates go much higher

Is it time to invest in gold

Is it time to invest in gold

Federal Reserve Chairman Jerome Powell said he doesn't see a USA recession in the near future, despite the rising likelihood of slowing growth elsewhere around the globe.

That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow USA growth this year.

"I would expect them to repeat that the economy is strong", Scotiabank economist Derek Holt said.

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.

In that appearance Powell emphasized the Fed's flexibility and patience in evaluating data, easing expectations of steady rate hikes in a message amplified by a half dozen other Fed officials in recent days.

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

The partial government shutdown is unlikely to leave a mark on the economy in the short term, though the Fed will have a less clear picture of growth without data from the Commerce Department, which releases figures including retail sales and gross domestic product.

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Powell said, for now, there is no evidence suggesting an elevated possibility of a recession.

In remarks at an appearance in Little Rock, Arkansas, on Thursday, St. Louis Fed President James Bullard was blunt, saying that the central bank had reached the "end of the road" in its current rate increase cycle. 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.

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 United States economy appears "solid", a slowdown in China "is a concern".

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job.

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

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

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