January 19, 2019

Shares - Wall Road Flies Excessive on Fed Persistence, Job Features

07 January 2019, 04:38 | Rodolfo Wallace

US Federal Reserve Chairman Says He Would Not Resign If Trump Asks Him to Leave

Markets Rally after Strong Jobs Report, Powell's Vow to Be 'Patient' with Policy

He also defended his independence, saying he would not resign if requested Donald Trump asked.

Powell denied the criticism that the Fed's gradual reduction of its holdings of Treasuries, mortgage bonds and other assets - amounting to 4.5 trillion dollars when the Fed began its balance sheet normalization program in October 2017 - had exacerbated the stock market turbulence in the fourth quarter of 2018.

"Powell's more dovish tone supports our expectation for only one rate hike in 2019, followed by a pause through 2020", economists Mickey Levy and Roiana Reid at Berenberg Capital Markets wrote in a note to clients.

"Markets are expressing concerns about global growth in particular and trade negotiations", Powell said. "And particularly with muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves".

On Friday, the Labor Department reported the USA added 312,000 jobs in December, much above analyst expectations. Stocks have been pressured since mid-December when the Fed raised its benchmark interest rate a quarter-point while issuing a somewhat-hawkish statement despite lowering its rate hike projections from three to two.

The Fed chief stressed that the economy remained on track and that the job market was quite strong. Do we need to move more, faster?

Following Powell's remarks, Treasury yields rose and futures traders began pricing in a small chance of a rate hike this year, versus no chance seen before Powell began speaking.

While Trump has sent out a number of tweets criticizing Powell and calling the Fed the biggest threat to the economy, Powell said that he had not received any direct pressure from the White House.

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Powell's appearance in Atlanta was his first since last month's rate increase and a public lashing from Trump, who according to sources asked aides about his power to fire the Fed chairman.

At the conference on Friday, Mr Powell said he has not spoken directly to Mr Trump and would not resign if asked.

On the economic front, stronger-than-expected employment data helped regain steam for the United States economy.

Meanwhile the Labor Department said USA employers added 312,000 jobs last month, a far stronger result than experts had anticipated.

Powell "said exactly what the markets wanted to hear", said Gregori Volokhine of Meeschaert Financial Services. That suggests the Fed won't tighten again in March, she said.

Powell said he did not think the latter was having much impact on markets, but that the strategy would be changed if it started interfering with the bank's broader goals of maintaining strong employment and stable inflation. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.

"(Powell is) saying the right things: "that the Fed is prepared to shift, that it's listening carefully, that it's sensitive to the messages the market is sending", said James Athey, Senior Investment Manager, Aberdeen Standard Investments, in London.

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