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. U.S. President Donald Trump had earlier on Thursday said that Washington was having "tremendous success" in its trade negotiations with China.
Federal Reserve vice-chairman Richard Clarida said the central bank should be ready to adjust monetary policy if headwinds to the economy from financial markets or global growth prove persistent, suggesting caution about moving ahead with interest-rate increases.
The S&P gained 3.43 percent, and the yield on the 10-year Treasury note rose 11 basis points.
St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore, Oct. 8, 2018.
"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. Bloomberg's financial conditions index has retraced much of its December tightening.
He also warned the U.S. economy could take a clear hit from the government shutdown if it continued for a long time. "That was conditional on a very strong outlook for 2019, an outlook that may still happen".
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Fed officials and many forecasters expect growth to slow in 2019, but to remain strong enough to continue generating jobs and keeping the unemployment rate near its nearly 50-year low.
The U.S. central bank raised rates four times a year ago in the face of robust economic growth and unemployment that touched its lowest level in half a century.
"There is no pre-set path for rates. particularly now", he said.
December figures for the Fed's preferred gauge of inflation - a separate measure related to consumption - are scheduled for release on January 31, though the report could be delayed because of the partial government shutdown.
Despite his largely upbeat view on the USA economy, and clear signals the Fed will be patient about raising interest rates any higher - statements that helped equities to recovery - markets focused on those two words.
"We're in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we're waiting and watching", Powell said Thursday at the Economic Club in Washington, D.C. If global growth slows more, "I can assure you.we can flexibly and quickly move policy, and we can do so significantly if that's appropriate", he added.