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Fed policy report flags strong economy, uncertain policy outlook

Fed keeps in mind supported and strong job market

Report flags raised monetary appraisal levels

(Adds comments on efficiency, Fed policy guidelines)

By Michael S. Derby

Feb 7 (Reuters) - The Federal Reserve's latest Monetary Policy Report to Congress, released on Friday, was positive about the state of the economy however alerted about some concerning elements of the financial system.

The report, which comes ahead of next week's testament before Congress by Fed Chair Jerome Powell, said main bank authorities remain committed to getting inflation back to 2% and kept in mind that when it pertains to interest rate policy modifications officials "will carefully assess incoming information, the evolving outlook, and the balance of threats."

The release explained the general economy as doing well amid a solid and market and decreasing inflation pressures.

The Fed report said the monetary system is broadly speaking "sound and resilient." But it likewise kept in mind "appraisals remained high relative to principles in a variety of markets, including those for equity, corporate financial obligation, and property realty."

It likewise said "appraisal pressures increased rather from currently high levels" while flagging that "vulnerabilities related to monetary leverage remained significant."

The report did not appear to recommend any broad danger to the economy from the monetary system and said that "credit continued to be broadly available" to mid-sized and large organizations, many homes and city governments. Credit was "fairly tight" for little companies and those with credit problems.

When it pertains to overall borrowing levels, total financial obligation levels for households and non-financial firms "continued to trend down to a level that is very low relative to that in the previous 20 years."

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

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

The main bank was able to lower its interest rate target by a complete percentage point last year in the middle of reducing inflation pressures. Future cuts, however, are extremely uncertain as Trump pursues trade and labor force policies that most financial experts think will drive up inflation at a time when rate pressures remain above target. Some in the Fed have actually pointed straight at the federal government as a source of uncertainty restricting the guidance authorities can supply about the monetary policy outlook.

The Fed report had limited talk about the prospects for Trump trade policies but did keep in mind "some market participants also indicated prospective increases in U.S. tariffs on imports as a factor pushing the dollar higher in recent months."

The release also said strong performance might help the economy grow faster in the future without creating inflation pressures. The Fed found that emerging synthetic intelligence technology had not done much yet to goose performance but said the impact "might grow as AI utilize ends up being more prevalent."

While the report didn't have much guidance about the outlook for monetary policy, setiathome.berkeley.edu it did acknowledge that the current 4.25-4.50% federal funds target rate variety was consistent with the level recommended by policy rules. Officials don't use guidelines to set policy however see them as elements worth thinking about as they figure out the ideal level for short-term rate of interest. (Reporting by Michael S. Derby; Editing by Andrea Ricci)