Fed policy report marks a stable economy, a rising market
Michael S. Derby
(Reuters) – The Fed's latest monetary policy report to Congress on Friday is optimistic about the economic situation, but warns of some aspects of the financial system.
The report comes next week before Congress by Fed Chairman Jerome Powell, who said central bank officials are still committed to bringing inflation back to 2%, noting that when When it comes to interest rate policy changes, officials “will carefully evaluate incoming data, evolving prospects and risk balance.”
This version describes the overall economy as performing well in a solid, balanced job market and falling inflationary pressures.
The Fed's report says the financial system broadly says “voice and resilience”. But it also noted: “Values remain high relative to a range of markets, including equity, corporate debt and fundamentals of residential real estate.”
It also said that “valuation pressure has increased from an already high level” while marking “loops related to financial leverage are still worth noting.”
The report does not appear to suggest any broad threat to the economy by the financial system and says “credit continues to be widely available” for medium and large businesses, most households and local governments. Credit is relatively small for small companies and those with credit problems.
When it comes to overall borrowing levels, the total debt levels of households and non-financial companies “continue to trend towards very low levels over the past two decades.”
Monetary policy reports are reported twice a year, with data available to central banks as of Thursday. The report usually summarizes well-known topics for observers and market participants.
The report is because the Fed is facing a highly uncertain environment due to the massive policy changes that are now under consideration, and President Donald Trump is happening.
Central banks were able to lower their interest rate targets to a full percentage point last year as inflationary pressures eased. However, as Trump pursues trade and labor policies, most economists believe that future cuts are highly uncertain at a time when price pressures remain above targets. Some in the Fed directly point out that the government is the source of uncertainty that restricts guidance officials can provide about the monetary policy outlook.
The Fed's report has limited outlook for Trump's trade policy, but does not say: “Some market participants also point to an increase in tariffs on U.S. imports, which is a factor driving the dollar's rise in recent months.”