U.S. stocks closer higher amid Fed's signals of gentler monetary policy

07 January, 2019, 03:10 | Author: Brooke Harris
  • US Fed chief boosts markets claiming policymakers are 'listening' to market fears, despite strong jobs data

Federal Reserve Chairman Jerome Powell on Friday moved to ease concerns in financial markets, saying that while USA economic momentum is solid, the central bank is sensitive to the risks highlighted by investors and will be patient with its monetary policy in 2019.

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.

Markets soared on Friday ー the Dow Jones Industrial Average closing the day up close to 750 pointsーfollowing comments by Fed Chair Jerome Powell on monetary policy and reports that the jobs market is not slowing.

"If the president asked you to resign, would you do it?" the moderator asked Powell.

The main catalysts for the surge were the monthly US payrolls report, which blew past economists' forecasts with the largest number of jobs created in 10 months, and comments by the Fed's Powell. "We're listening sensitively to the message that markets are sending".

In a session emblematic of the elevated volatility that has gripped markets for weeks, all three major USA stock indexes surged more than 3 percent in one of the broadest advances in years.

"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.

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"No one knows whether this year will be like 2016", Powell said in remarks that appeared to be scripted at the start of the event. Since then, the Federal Reserve chairman has received several reasons to temper his assessment.

Powell called the jobs report "very strong", with US data "on track to sustain good momentum into the new year". "We're always prepared to shift the stance of policy and to shift it significantly if necessary". He discussed the state of the economy with former Federal Reserve Chief's Janet Yellen and Ben Bernanke.

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.

Still, with unemployment at 3.7 percent, some economists caution that inflation could move higher if labor shortages begin to bite - that's partly why the Fed hiked rate four times previous year. "Some years ago, we decided that rate policy was going to be the active policy tool and the balance sheet would be allowed to shrink gradually and predictably in the background", he said.

While it's not a real-economy measure, the Fed closely watches market volatility because it can feed through to consumer and business sentiment and the real economy.

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

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