Powell muddies Fed’s monetary message to pacify markets for now

Dovish Fed Chief Powell Delivers What the Markets Wanted

Federal Reserve Chairman Jerome Powell on Friday sought to ease market concerns that the USA central bank was ignoring signs of an economic slowdown, saying he was aware of the risks and would be patient and flexible in policy decisions this year. The moves follow a better-than-expected job report that showed that 312,000 jobs were created in December, with the unemployment rate rising to 3.9%, as more workers entered the workforce. "Can we wait?", Cleveland Federal Reserve Bank President Loretta Mester said in an interview with Reuters. "Powell is definitely trying to calm the markets". "The Fed has willfully ignored trade and interest rate risks while talking a hawkish game".

He has blamed the Fed for stock market declines and said he is "not even a little bit happy" with Mr Powell, whom he named to lead the Fed in 2017.

The S&P closed up 3.4 percent.

Stocks surged on Friday after the Labor Department reported US firms created 312,000 jobs in December, and Powell said the Fed would be flexible in deciding on any further rate increases.

"The market's been grappling with growth, the Fed and China", said Tony Roth, chief investment officer at Wilmington Trust in Wilmington, Delaware. "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.

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.

In response to the observation that the Treasury issues more securities when the Fed's balance sheet holdings mature, Powell said, "We don't believe our issuance is an important part of the story in the market turbulence that began in the fourth quarter of past year".

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

The two former central bank chairs also threw their support behind Powell and Fed independence following months of escalating criticism from Donald Trump.

Powell triggered an acceleration in the selling pressure when he said, "As always, there is no preset path for policy". Powell said last week he wouldn't resign if the president asked him to step down. But she said the turbulence may also stem from a different view of the economy than that shared by many Fed officials who feel confident USA growth will remain on track for the next year, with labour markets still strong. Sliding equity prices, weakness overseas and mixed economic data at home have prompted calls for the Fed to put rates on hold, but the US labor market remains red-hot. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.

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

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