Wall Street roars back on robust jobs report, dovish Powell remarks

08 January, 2019, 00:20 | Author: Judith Dennis
  • Jerome Powell says Federal Reserve ready to adjust policy if needed can be patient

"We are in a new world", Mester said, where the obvious need to raise rates has given way to a situation where economic growth is expected to slow, wages are rising on the basis of low unemployment, interest rate sensitive sectors of the economy like housing have ebbed, and the unemployment rate has roughly "stabilized" at a low level.

The Fed, which hiked benchmark US interest rates four times past year including in December, is however not on a preset path and could pause policy tightening as it did in 2016 when global growth concerns led to doubts about the USA economic recovery, he said.

"We wouldn't hesitate to change it and that would include the balance sheet".

He also defended the Fed's rate rises, pointing to strong economic data that suggest businesses and households can handle the higher costs.

"Barring further tightening in financial conditions that would negatively impact economic activity, the very strong labor market picture support (s) our expectations that the Fed will keep a tightening bias in 2019 and hike rates twice next year". Most of the companies in those industries stand to do better in times of faster economic growth.

The Labour Department reported Friday that United States employers added a net 312,000 new positions in December, smashing economists' expectations.

"Investors and Fed officials will certainly take some comfort from today's stellar jobs report", Oxford Economics said in a research note. Sellers were also driven by a dramatic shift in the tone of U.S. Federal Reserve Chairman Jerome Powell, who reversed his hawkish tone from December to dovish.

The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement. However, despite Trump's continual criticism on Powell through his twitter account, the Fed chair stated emphatically that he would not resign from his post if asked. This response no doubt helped the market to recover on Friday.

U.S. President Donald Trump has called the Fed's rate hikes a mistake and said he was not happy with Powell.

The dollar strengthened. It rose to 108.51 yen from 107.77 yen.

Powell's willingness to be flexible on interest rates was welcome news to investors, many of whom anxious that Fed chair risked cutting off the current economic expansion by continuing to raise interest rates despite signs the US economy was cooling off a little.

Volume on USA exchanges was 8.68 billion shares, compared to the 9.14 billion average over the last 20 trading days. "Powell is definitely trying to calm the markets".

Dallas Fed President Robert Kaplan said on Thursday that planned rate hikes should be halted for now, while on Friday Mester said she sees only one or two rate hikes this year.

"Markets are expressing concerns about global growth in particular and trade negotiations", Powell said at an event in Atlanta. "But it's the first time (Powell has) said anything that's dovish enough for the markets liking".

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