Friday, 22 March, 2019

Federal Reserve is flexible and aware of risks, says Powell

Susan Walsh | AP
  Susan Walsh | AP  Federal Reserve Chairman Jerome Powell speak at a news conference in Washington Wednesday Dec. 19 2018 Susan Walsh | AP Susan Walsh | AP Federal Reserve Chairman Jerome Powell speak at a news conference in Washington Wednesday Dec. 19 2018
Russell Knight | 07 January, 2019, 03:13

U.S. Federal Reserve Chairman Jerome Powell on Friday signaled patience in the central bank's policy contemplation for this year despite a higher-than-expected job growth data released on the same day.

Powell's Fed hiked rates four times a year ago and projections from its December 19 meeting show officials expect two more hikes in 2019.

Appearing on a panel with his two predecessors - Yellen and Ben Bernanke - Powell also said that the Fed could alter its approach to trimming its huge balance sheet if it determines such a change is needed.

The Dow Jones Industrial Average.DJI rose 746.94 points, or 3.29 percent, to 23,433.16, the S&P 500.SPX gained 84.05 points, or 3.43 percent, to 2,531.94 and the Nasdaq Composite.IXIC added 275.35 points, or 4.26 percent, to 6,738.86. Furthermore, Fed Chair Powell also said that rate hikes would continue to be gradual and data dependent.

Earlier on Friday, the Labor Department reported that nonfarm payrolls jumped by 312,000 jobs, well above market expectations, while wages and labor force participation rose, all signals of sustained economic strength. The figures strengthened the case of those who have argued that markets have overreacted to signs that USA growth may have peaked.

Those back-to-back market-friendly developments helped U.S. and European stock bourses surge higher and set aside for now nervousness over trade wars, a United States government shutdown and a slowing economy that have pressured stocks for most of the last month.

Powell's comments alleviated some worries that the Fed's course of monetary tightening may be too aggressive in the event of an economic slowdown.

"Markets are expressing concerns about global growth in particular and trade negotiations", Powell said.

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"We will be patient as we watch to see how the economy evolves", he said.

"With Chairman Powell's remarks today, I would say they will do just one hike or maybe no hikes this year", said Sung Won Sohn, chief economist at SS Economics.

On Friday, Powell said, "We are always prepared to shift the stance of policy and to shift it significantly if necessary" to meet the goals of maximum employment and stable prices.

Although still low by historical standards, this latest hike put interest rates at the highest level in almost a decade.

Still, with unemployment at 3.7 percent, some economists caution that inflation could move higher if labor shortages begin to bite - that's partly why the Fed hiked rate four times a year ago.

At the same time, he reassured investors of the Fed's flexibility.

Speaking at the American Economic Association's annual meeting, Powell waved off criticisms from the Oval Office, such as when Trump said he was "not even a little bit happy" with Powell's performance, saying he had not received any direct communication from the White House about the Fed's actions, including recent rate hikes.

On December 19th, Powell said that the scheme to reduce the Fed's bloated balance sheet is on "autopilot".

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