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

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

Against that backdrop, Powell said most of the hard data we see coming in remains quite solid.

From rising wages to a slowdown in housing, economic evidence is mounting that the U.S. Federal Reserve is at or near a neutral level of interest rates where it can take stock of where the economy stands before deciding on its next moves, Cleveland Federal Reserve president Loretta Mester said.

"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.

Powell gave as an example the fact that in 2016, when Janet Yellen was Fed chair, the central bank began the year with a projection that it would raise rates four times that year but ended up raising rates only once because the economy hit a soft-patch.

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

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.

The problem is that Powell doesn't seem to buy into investors' worst fears about the economic outlook and the adverse market impact of the Fed's cutback in its $4.1 trillion bond portfolio.

The pace of Fed rate hikes and the lowering of the balance sheet, which tends to put upward pressure on interest rates, had both been concerns of investors in recent months.

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Asked if he would resign if Trump asked him to do so, Powell responded with a short "no".

Powell called the jobs report "very strong", with USA data "on track to sustain good momentum into the new year". 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.

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

"The market's been grappling with growth, the Fed and China", said Tony Roth, chief investment officer at Wilmington Trust in Wilmington, Delaware. "There aren't signs of significant economic weakness".

"The markets are feeling better that the Fed is not strangling the overall economy and perhaps forcing it into a recession, and that removes a monetary policy concern that has been hanging over the market for the past few months", said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC.

Mr Powell said that he did not believe the Fed's removal of stimulus by shrinking holdings of Treasuries and mortgage-backed securities played a major role in the recent market turmoil.

Powell "said exactly what the markets wanted to hear", said Gregori Volokhine of Meeschaert Financial Services.

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

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