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1 Fed Monetary Policy Report Flags Solid Economy, Raised Markets

Fed policy report flags strong economy, uncertain policy outlook

Fed notes supported and strong task market

Report flags raised monetary appraisal levels

(Adds talk about performance, Fed policy rules)

By Michael S. Derby

Feb 7 (Reuters) - The Federal Reserve's newest Monetary Policy Report to Congress, released on Friday, was positive about the state of the economy but cautioned about some worrying aspects of the financial system.

The report, ura.cc which comes ahead of next week's testimony before Congress by Fed Chair Jerome Powell, said main bank officials remain committed to getting inflation back to 2% and noted that when it pertains to rates of interest policy modifications authorities "will thoroughly evaluate inbound information, the progressing outlook, and the balance of threats."

The release explained the total economy as succeeding amidst 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 noted "appraisals remained high relative to basics in a series of markets, including those for equity, corporate financial obligation, and domestic realty."

It likewise said "appraisal pressures increased rather from currently high levels" while flagging that "vulnerabilities associated with financial utilize remained notable."

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 large businesses, a lot of families and city governments. Credit was "fairly tight" for little firms and those with credit concerns.

When it pertains to overall loaning levels, total debt levels for households and non-financial companies "continued to trend down to a level that is really low relative to that in the previous twenty years."

The Monetary Policy Report, which comes twice yearly, was based upon data available to the main bank since Thursday. The report generally summarizes subjects already popular to Fed watchers and market .

The report comes as the Fed deals with a highly uncertain environment due to large-scale policy changes now considered or underway from President Donald Trump.

The main bank was able to decrease its rate of interest target by a full percentage point in 2015 amidst reducing inflation pressures. Future cuts, nevertheless, are highly uncertain as Trump pursues trade and labor force policies that a lot of economic experts think will drive up inflation at a time when price pressures remain above target. Some in the Fed have pointed straight at the federal government as a source of uncertainty limiting the guidance authorities can supply about the monetary policy outlook.

The Fed report had limited discuss the potential customers for Trump trade policies however did note "some market participants also indicated possible increases in U.S. tariffs on imports as an element pressing the dollar higher in recent months."

The release also said strong efficiency may help the economy grow quicker in the future without producing inflation pressures. The Fed discovered that emerging artificial intelligence technology had not done much yet to goose productivity but said the impact "might grow as AI utilize becomes more extensive."

While the report didn't have much guidance about the outlook for financial policy, it did acknowledge that the present 4.25-4.50% federal funds target rate range was consistent with the level recommended by policy guidelines. Officials do not utilize guidelines to set policy but see them as aspects worth considering as they identify the best level for short-term rate of interest. (Reporting by Michael S. Derby