Fed's Powell: Longer US government shutdown will hit economy

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Powell also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy, such as retail sales and GDP growth. Right now, the Fed doesn't see evidence of either.

That could support consumer spending, which accounts for about 70 percent of the US economy, at a time when the outlook is dimming for companies in a variety of industries.

"It'll be substantially smaller than it is now.but nowhere near where it was before", Powell said of the balance sheet, which began shrinking in October 2017.

In a context of lower global growth forecasts, low inflation gives the US Fed time to pause and assess its policy stance in 2019, Fed vice-chair Richard Clarida said in a speech on January 10.

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"If we find that the ongoing programme of balance sheet normalisation or any other aspect of normalisation no longer promotes the achievement of our dual-mandate goals, we will not hesitate to make changes, " Clarida said.

Stocks turned negative after the comments, with the Dow recently down about 35 points.

But he noted that the economic data would also be muddied because the shutdown is impacting the Commerce Department, which operates the Bureau of Economic Analysis and the Census Bureau.

In the United States, reports from Macy's and American Airlines added to fears that growth of corporate profits would shrink, concerns that were also exacerbated by Apple's sales warning last week.

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"We would have a less clear picture into the economy if it were to go on much longer", Powell said.

Fed Vice Chairman Richard Clarida, in remarks prepared for delivery in NY, said borrowing costs are now at the bottom of the range of estimates for the long-run neutral level that would neither stimulate nor inhibit economic growth.

But when Rubenstein asked if he'd be happy to accept an invitation, Powell simply repeated: "I'm not aware of anyone not accepting it". But major stock indexes temporarily moved into negative territory after Powell said the bank's balance sheet would be "substantially smaller", and after he raised concerns about the size of U.S. debt. "You should anticipate that we're going to be patient and watching, and waiting and seeing".

A key measure of USA inflation was little changed in December while falling energy prices dragged down the broader gauge, giving the Federal Reserve little urgency to raise interest rates soon as it signals a more cautious approach in 2019. The Fed chief will be in focus again this afternoon as he fields questions at the Economic Club of Washington.

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