The Fed chair, who has been publicly criticised repeatedly by President Donald Trump in recent months, warned that if there is an "extended shutdown", it would have an impact on the economy that "would show up in the data very clearly".
Federal Reserve Chairman Jerome Powell said on Thursday the US central bank has the ability to be patient on policy given inflation is stable, allowing it to assesses whether the USA economy will slow this year as some in financial markets worry.
USA stocks initially turned lower after Powell said the central bank is sticking with its process of shrinking its balance sheet to a more normal level, which removes stimulus put into place to revive the economy following the financial crisis and recession a decade ago.
The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said.
Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost US$4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now.
But Fed Chairman Jerome Powell also sought to reassure financial markets last week, saying policymakers will be "patient" before making any further moves as they watch to see how the economy evolves and could react quickly to any changes. He said he didn't know the exact level.
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Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for two hikes in 2019 had suggested.
He also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy. While the central bank last month penciled in two interest-rate hikes in 2019 following four in 2018, officials are now signaling a potential pause through March or longer amid headwinds from trade, the USA government's partial shutdown and global growth risks.
At the same time, Powell acknowledged that financial markets are expressing concern about risks.
Trump has urged the Fed not to raise interest rates at all this year. Those forecasts appear supported by a robust December labor-market report, which showed the economy added 312,000 non-farm jobs, the most in 10 months.
While there is wide agreement that the USA economy will grow more slowly than the roughly 3 per cent rate of 2018, there's a lot of debate about how fast the slowdown will be.
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.