Fed chair Jerome Powell to speak on market concerns Thursday

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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.

On Thursday, Powell said he hasn't seen anything to indicate that the risk of a recession is elevated.

Friday's report showed shelter costs, which account for one- third of the CPI, rose 0.3 percent for a second month.

However, Fed had lowered the growth forecast of the United States economy to 2.3 percent during the latest rate hike in December.

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

Speaking of the pace of rate hikes, Powell said the Fed "don't actually vote on a path or a plan for interest rates".

On Thursday, Fed Vice Chairman Richard Clarida said in a speech that "inflation has surprised to the downside recently, and it is not yet clear that inflation has moved back" to the central bank's goal on a sustainable basis.

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".

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost $4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now. Bloomberg's financial conditions index has retraced much of its December tightening.

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Still, Powell's comments and those of other officials "are developing a new narrative".

He also warned the U.S. economy could take a clear hit from the government shutdown if it continued for a long time. Traders were already wary of statements Powell made in December about rate hikes.

U.S. Treasury debt prices erased early gains after a soft 30-year bond auction and in reaction to Powell's comments on the Fed "substantially" reducing the size of its balance sheet. "That was conditional on a very strong outlook for 2019", which may or may not materialize, with the Fed adjusting policy accordingly. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.

Many business leaders remain optimistic about the U.S. economy this year, despite higher interest rates and large swings in the stock market.

Mr. Clarida said monetary policy, after four rate increases a year ago, isn't on "preset course".

"The principle worry I would have is global growth", Powell said.

Powell's speech also addressed his longer-term concern about rising USA debt.

"If we have an extended shutdown, I do think that would show up in the data pretty clearly", Powell stated.