Fed policy report flags solid 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, launched on Friday, was positive about the state of the economy however cautioned about some worrying aspects of the financial system.

The report, 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 interest rate policy changes authorities "will thoroughly evaluate inbound information, the progressing outlook, and the balance of threats."

The release explained the total economy as succeeding amid a solid and better-balanced job market and declining inflation pressures.

The Fed report said the monetary system is broadly speaking "sound and resistant." But it also kept in mind "appraisals remained high relative to basics in a range of markets, including those for equity, business debt, and property property."

It likewise said "appraisal pressures increased somewhat from already high levels" while flagging that "vulnerabilities related to financial utilize remained noteworthy."

The report did not appear to suggest any broad hazard to the economy from the financial system and said that "credit continued to be broadly available" to mid-sized and big services, the majority of households and city governments. Credit was "fairly tight" for little firms and those with credit problems.

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

The Monetary Policy Report, which comes two times yearly, was based on information available to the main bank as of Thursday. The report generally summarizes subjects currently well understood to Fed watchers and market individuals.

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

The main bank had the ability to decrease its rate of interest target by a full portion point in 2015 amidst easing inflation pressures. Future cuts, nevertheless, are extremely uncertain as Trump pursues trade and labor disgaeawiki.info force policies that most financial experts think will increase inflation at a time when price pressures remain above target. Some in the Fed have actually pointed straight at the government as a source of uncertainty limiting the assistance authorities can supply about the monetary policy outlook.

The Fed report had actually limited remarks on the prospects for Trump trade policies however did note "some market individuals also pointed to prospective boosts in U.S. tariffs on imports as a factor pressing the dollar higher in recent months."

The release likewise said strong efficiency may help the economy grow more quickly in the future without creating inflation pressures. The Fed found that emerging artificial intelligence technology had not done much yet to but said the impact "may grow as AI use ends up being more extensive."

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 target rate range followed the level recommended by policy guidelines. Officials do not use guidelines to set policy however see them as aspects worth thinking about as they figure out the right level for short-term rates of interest. (Reporting by Michael S. Derby; Editing by Andrea Ricci)