Dovish Fed Chief Powell Delivers What the Markets Wanted

07 January, 2019, 08:58 | Author: Sue Riley
  • Dow surges 600 points on Fed chairman’s remarks jobs report

In response to criticism from President Donald Trump, Federal Reserve Chairman Jerome Powell said he would not resign if he were asked.

United States jobs growth increased at a higher rate than expected in December according to the latest data, as employers hired the most workers for 10 months and wages also rose. "We don't believe our issuance is an important part of the story", he said.

By Rich MillerFederal Reserve Chairman Jerome Powell has managed to assuage fickle financial markets by muddying the central bank's monetary message.

Powell gave as an example the fact that in 2016, when Janet Yellen was Fed chair, the central bank began the year with a projection that it would raise rates four times that year but ended up raising rates only once because the economy hit a soft-patch.

Federal Reserve Chair Jerome "Jay" Powell took steps to reassure financial markets on Friday, saying that the United States central bank would be "patient" about rate rises.

The tech-heavy Cheddar 50 Index, which measures the performance of Cheddar's 50 top companies ー from Apple ($AAPL) to GM ($GM) ー gained 5.4 percent on Friday, amid broader market gains. But some investors have anxious that that process could push long-term rates higher at a time when the economy was slowing. "We're hearing a lot from different groups of people about the role the balance sheet normalization may be playing in the market", Powell said.

Private economists viewed Powell's comments as a strong signal that the Fed, which in December had projected another two rate hikes in 2019, may end up deciding to pause hikes for several months.

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The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement.

In December, Powell said that the Fed's balance sheet reduction was on "autopilot".

"We will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track", he said, adding "there is no pre-set path for policy". Powell said last week he wouldn't resign if the president asked him to step down.

"I found it actually quite surprising how benign markets were for such a long time, despite the risks of trade wars and other things that were going on", Bernanke said in an observation that's shared privately by some Fed officials.

A report Friday from JPMorgan Chase said trends in financial markets suggest investors have priced in around a 60 percent chance of a recession, while economists have put the odds of a recession within one year at around 40 percent. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.

In Atlanta, Powell said Fed policy is flexible and the central bank is "listening carefully" to markets.

"Longer-term bonds have sold off here today in price", said Tim Ghriskey, chief investment officer at Inverness Counsel in NY.

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