U.S. official warns of recession risk if interest rates go much higher

Is it time to invest in gold

After four rate hikes previous year, the Fed would be "bordering on going too far and possibly tipping the economy into recession" if rates go higher, Bullard said, adding that he would be willing to cut interest rates if needed.

"Especially with inflation low and under control, we have the ability to be patient and watch patiently and carefully as we. figure out which of these two narratives is going to be the story of 2019", Powell said at the Economic Club of Washington.

Powell also said he didn't see signs of a recession in the near term, but noted that his "principal worry" was a slowdown in global growth and that while the U.S. economy appears "solid", a slowdown in China "is a concern". It would be up to the Fed to decide how to balance those worries with the signals of a strong economy. "It's a tightly integrated economy and financial markets will see the effects of that", he said.

Recessions are typically caused by inflation rising quickly and forcing the Fed to respond with high interest rates or some sort of bubble in markets. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey. "We don't get distracted".

Clarida repeated Powell's assertion earlier in the day that monetary policy was not on a preset course. Trump tapped Powell for the post after deciding not to offer then Fed-Chairman Janet Powell a second term.

Powell seemed open to, though not enthusiastic, about a potential meeting with Trump.

Trump stepped up his criticism of the Fed's string of rate hikes past year after the market started falling sharply in October.

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The Fed chair will be taking questions in what will be his first major comments since the central bank took a decidedly more cautious tone about its future pace of interest rate hikes.

USA central bankers are refining their message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets. Traders were already wary of statements Powell made in December about rate hikes. The Fed cut the rate to nearly zero during the financial crisis but has since raised it to a "neutral" level, meant to neither stimulate nor constrain the economy. He also made clear that applies to the Fed's approach to its $4.1 trillion balance sheet, which the central bank is now reducing by a maximum of $50 billion per month.

Powell noted that the Fed's holdings were around $1 trillion before the 2008 crisis.

"There is no such plan", Powell said.

At the same time, Powell acknowledged that financial markets are expressing concern about risks.

"There is no pre-set path for rates. particularly now", he said.

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