Powell Meeting On? Depends on Who You Ask

Powell Meeting On? Depends on Who You Ask

Powell Meeting On? Depends on Who You Ask

Stocks were already trading higher after the release of December labor data that showed job and wage growth were still solid despite the market's effort to convince investors otherwise. 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.

By Rich MillerFederal Reserve Chairman Jerome Powell has managed to assuage fickle financial markets by muddying the central bank's monetary message.

The Fed, which hiked benchmark US interest rates four times a year ago 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. This caused investors to dump higher-yielding stocks, raising stock market volatility and driving investors into the safe-haven Treasurys.

Equities all over the globe had experienced a rally on Friday, the 4th of December, after steep declining earlier this week, as trade-talk hope signaled a relief for the investors and dovish Fed helped to overhaul market momentum, as Fed Chair Jerome Powell had said that the USA central bank would be patient with the monetary policy.

Stocks rallied further after Fed Chair Jerome Powell told a gathering of economists that the U.S. central bank had no "pre-set" plan for interest rates and was carefully monitoring economic conditions.

"The upcoming earnings season will likely see managements reset 2019 earnings expectations to something close to flat versus 2018", said Colas in note on Friday, adding that stocks could push higher in the year even if January is a month of losses.

"That's quite welcome", Powell said. That could lead to renewed turbulence as the Fed and other central banks seek to normalise monetary policy at a time of cross currents in the global economy.

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

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 a year ago".

The two former central bank chairs also threw their support behind Powell and Fed independence following months of escalating criticism from Donald Trump. "We are always prepared to shift the stance of policy and to shift it significantly" if needed.

Traders said Powell's comments were perceived as dovish because he said the Fed had no preset path for policy and could be patient when it comes to future interest rate hikes.

"This employment report suggests the USA economy still has considerable forward momentum".

The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion in assets. He also said that the central bank would be willing to "adjust" policy if it disrupted the market or created adverse financial conditions, running against the central bank's statutory goals. "US data seem to be on track to sustain good momentum in to the New Year, " he said.

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