Powell Meeting On? Depends on Who You Ask

Mario Picone center works with fellow specialists on the floor of the New York Stock Exchange Friday Jan. 4 2019

U.S. jobs growth increased at a higher rate than expected in December according to the latest data, as employers hired the most workers for 10 months and wages also rose. "Can we wait?", Cleveland Federal Reserve Bank President Loretta Mester said in an interview with Reuters.

By Rich MillerFederal Reserve Chairman Jerome Powell has managed to assuage fickle financial markets by muddying the central bank's monetary message. Still, recent declines in financial markets reflect concerns among investors about downside risks to the outlook, he said.

Shortly after a bullish jobs report for December sparked a small rally in the ailing stock market, Fed Chairman Jerome Powell ignited an even stronger surge after he delivered just what the doctor ordered - that the Fed will be flexible on monetary policy and it is in no rush to raise interest rates.

The market bounce came after a volatile December selloff in which traders grew increasingly skeptical of the Fed's upbeat forecasts and plans to keep hiking interest rates in 2019.

In the cash market, the benchmark S&P 500 Index settled at 2531.94, up 84.05 or +3.17%.

"That's quite welcome", Powell said.

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.

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

"The problem in my opinion is Treasury and the Fed", Trump said.

The two former central bank chairs also threw their support behind Powell and Fed independence following months of escalating criticism from Donald Trump.

Powell's willingness to be flexible on interest rates was welcome news to investors, many of whom anxious that Fed chair risked cutting off the current economic expansion by continuing to raise interest rates despite signs the USA economy was cooling off a little.

"As always, there is no preset path for policy", Powell said, according to CNBC. "The Fed has wilfully ignored trade and interest rate risks while talking a hawkish game". Asked if he had had any face-to-face meetings with Trump, Powell said he had not although he said previous Fed leaders have had discussions from time to time with previous presidents.

Analysts predicted that job reports for January and February will be more of a policy reference for the Fed than the December report as they would provide a clearer picture of how tightened financial conditions affect the US economy.

The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion in assets.

"We are in a new world", Mester said, where the obvious need to raise rates has given way to a situation where economic growth is expected to slow, wages are rising on the basis of low unemployment, interest rate sensitive sectors of the economy like housing have ebbed, and the unemployment rate has roughly "stabilized" at a low level.

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