Dovish Fed Chief Powell Delivers What the Markets Wanted

Dovish Fed Chief Powell Delivers What the Markets Wanted

Stocks saw the worst December rout since the Great Depression and a few near-term Treasury security yields have crept above their longer-term counterparts since Powell's December press conference, a sign that investors were pessimistic about the outlook for growth.

Currently, the USA inflation rate remains below what the Fed considers an optimal 2 percent level, meaning there is still space for economic expansion and workers are just beginning to benefit from the growth.

Powell called the December jobs report "very strong" and said USA data seems "to be on track to sustain good momentum into the new year".

Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening. Under the law that governs the Federal Reserve, a president can only remove a Fed chairman for cause. The market bounce came after a volatile December selloff in which traders grew increasingly skeptical of the Fed's upbeat forecasts and plans to keep hiking interest rates in 2019.

Stocks rallied further after Fed Chair Jerome Powell told a gathering of economists that the United States central bank had no "pre-set" plan for interest rates and was carefully monitoring economic conditions. Most of the companies in those industries stand to do better in times of faster economic growth. "The Fed has willfully ignored trade and interest rate risks while talking a hawkish game".

Compared to comments he made after the Fed raised rates last month, "it's not that he's changed his message. but that he explained it more patiently and in greater detail", said Lou Brien, market strategist at DRW Trading in Chicago. He also said that he would not resign if asked to do so by US President Donald Trump.

The number of jobs added to the economy in December surged more than expected, and the figures from October and November were revised higher.

Asked if any future meeting with Trump was scheduled, Powell said, "I have no news on that".

The world's biggest economy expanded well above potential last year and, along with USA consumers, is expected to remain strong through this year.

"No one knows whether this year will be like 2016", Powell said in remarks that appeared to be scripted at the start of the event. "They're going to continue to say: we'll watch the incoming data, growth is slowing, financial conditions have tightened, and we'll react accordingly". "Some years ago, we decided that rate policy was going to be the active policy tool and the balance sheet would be allowed to shrink gradually and predictably in the background", he said.

Speaking after months of volatility in world bond and stock markets, Powell avoided some of the communication missteps that in the past have roiled rather than calmed investors.

The US dollar retreated against the euro on Friday, giving up all the gains logged after a robust US jobs report, following comments from Federal Reserve Chairman Jerome Powell that the US central bank will be sensitive to the downside risks the market is pricing in.