Dovish Fed Chief Powell Delivers What the Markets Wanted

Nora Nguyen
January 8, 2019

Wall Street rebounded on Friday after a strong payrolls report and remarks from Federal Reserve Chairman Jerome Powell that suggested the central bank would be flexible with monetary policy.

Powell told the panel in Atlanta that he has not received any communications from the White House so far and has not scheduled a meeting with Trump. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Both of those messages cheered stock market investors who had been anxious about Trump's repeated attacks on his hand-picked choice to lead the nation's central bank and also the Fed's seemingly inexorable march to higher rates.

The December job report also indicated that unemployment rate was up 0.2 percentage point month-on-month to 3.9 percent, and that average hourly earnings for all employees on private nonfarm payrolls rose 11 cents, or 0.4 percent over November, to 27.48 USA dollars.

Powell triggered an acceleration in the selling pressure when he said, "As always, there is no preset path for policy".

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China's Commerce Ministry said the talks will be held Monday and Tuesday in Beijing and market watchers are once again hoping for signs the world's largest economic powers will make progress toward resolving their dispute.

Non-farm payrolls rose by 312,000 jobs in December, smashing forecasts and highlighting strength in the USA economy despite Wall Street's losses last month.

The question about Powell's possible departure arose after Trump expressed disagreement with the Federal Reserve's monetary policy to increase interest rates and the chairman's work overall.

"We're hearing a lot from different groups of people about the role that the balance sheet normalisation may be playing in the markets, " Powell said.

The tech-heavy Cheddar 50 Index, which measures the performance of Cheddar's 50 top companies ー from Apple ($AAPL) to GM ($GM) ー gained 5.4 percent on Friday, amid broader market gains.

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Speaking after months of volatility in world financial markets, and just hours after a monthly jobs report suggested the USA economy remained robust, Powell's soothing comments initially pushed stock indexes higher.

Volume on USA exchanges was 8.68 billion shares, compared to the 9.14 billion average over the last 20 trading days.

Building on a comment by Yellen that the Fed in the past has often killed expansions by jacking up rates to fight too-high inflation, Bernanke said he didn't see anyone "hiding behind the curtain" waiting to slay the current upturn, including the central bank.

The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion (3 trillion pounds) in assets. This also may have had a positive effects on markets.

While not a change in policy, it was a nod to market concerns that the Fed had a key decision on "auto-pilot", as Powell put it last month, even as it pledged to be dependent on economic data.

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"The markets are pricing in downside risks. and they are obviously well ahead of the data, particularly if you look at this morning's labor market data", Powell added.

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