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Fed policy report flags strong economy, uncertain policy outlook

Fed notes stabilized and strong job market

Report flags raised monetary appraisal levels

(Adds remarks on productivity, Fed policy rules)

By Michael S. Derby

Feb 7 (Reuters) - The Federal Reserve's most current Monetary Policy Report to Congress, released on Friday, was upbeat about the state of the economy however alerted about some worrying elements of the financial system.

The report, hb9lc.org 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 authorities "will thoroughly evaluate incoming data, the evolving outlook, and the balance of risks."

The release explained the overall economy as doing well in the middle of a solid and better-balanced job market and declining inflation pressures.

The Fed report said the monetary system is broadly speaking "sound and resilient." But it also kept in mind "appraisals remained high relative to principles in a variety of markets, consisting of those for equity, corporate debt, and residential real estate."

It also said "appraisal pressures increased somewhat from already high levels" while flagging that "vulnerabilities connected with monetary take advantage of remained notable."

The report did not appear to suggest any broad threat to the economy from the monetary system and said that "credit continued to be broadly available" to mid-sized and big services, most households and regional federal governments. Credit was "fairly tight" for small companies and those with credit concerns.

When it pertains to general loaning levels, total debt levels for families and non-financial firms "continued to trend down to a level that is extremely low relative to that in the previous 2 decades."

The Monetary Policy Report, which comes twice yearly, was based upon data available to the main bank since Thursday. The report typically sums up topics currently popular to Fed watchers and market individuals.

The report comes as the Fed faces an extremely uncertain environment due to massive policy modifications now contemplated or underway from President Donald Trump.

The main bank had the ability to lower its rate of interest target by a full percentage point last year in the middle of relieving inflation pressures. Future cuts, however, are extremely uncertain as Trump pursues trade and workforce policies that a lot of economic experts think will increase 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 restricting the assistance authorities can offer about the monetary policy outlook.

The Fed report had restricted talk about the potential customers for Trump trade policies but did keep in mind "some market individuals also pointed to potential increases in U.S. tariffs on imports as an aspect pressing the dollar higher in current months."

The release likewise said strong productivity may help the economy grow faster in the future without producing inflation pressures. The Fed found that emerging expert system technology hadn't done much yet to goose efficiency but said the impact "may grow as AI utilize ends up being more prevalent."

While the report didn't have much assistance about the outlook for financial policy, it did acknowledge that the present 4.25-4.50% federal funds range was consistent with the level recommended by policy guidelines. Officials don't utilize guidelines to set policy however see them as aspects worth considering as they identify the best level for short-term rates of interest. (Reporting by Michael S. Derby; Editing by Andrea Ricci)