Fed's Powell says short-term U.S. recession risks are not high

WASHINGTON (Reuters) - The U.S. economy does not face a large chance of a recession in the next two years and the Federal Reserve plans to keep gradually raising interest rates, Fed Chairman Jerome Powell said on Thursday.

Asked whether the narrowing gap between short-term and long-term interest rates points to an impending economic downturn, Powell said the U.S. central bank's analytical models suggest the economy will keep growing.

"There's no reason to think that the probability of a recession in the next year or two is at all elevated," Powell told a gathering of business people.

An inverted yield curve -- when short-term rates on U.S. Treasury securities rise above the long-term rates -- is typically regarded as a sign of a coming recession.

The Fed raised interest rates on Wednesday in a bid to keep U.S. inflation from eventually rising too high, in its third rate hike this year. Powell on Thursday repeated his view that rates need to keep climbing.

"My colleagues and I believe that this gradual return to normal is helping to sustain this strong economy for the longer-run benefit of all Americans," he said in a speech to Rhode Island business leaders hosted by Democratic Senator Jack Reed on Capitol Hill, before taking questions.

Powell's brief speech covered much of the ground he tread on Wednesday in his opening statement at a news conference after the Fed announced its rate hike.

Powell on Wednesday said that the U.S. economy was in a "particularly bright moment" as policymakers forecast another three years of growth, low unemployment and stable inflation.

(Reporting by Lindsay Dunsmuir; Editing by Leslie Adler)