The comments from a usually hawkish reserve bank president, made in an interview on the sidelines of the American Economic Association annual meeting, add to the sense that the roughly quarterly pace of rate hikes enacted by the Fed for the past two years may take a pause this year absent a surprise jump in inflation or faster-than-expected economic growth. Furthermore, Fed Chair Powell also said that rate hikes would continue to be gradual and data dependent. "Powell is definitely trying to calm the markets".
Wall Street stocks surged higher on Friday (Jan 4) to finish a volatile week on an upbeat note following dovish Federal Reserve comments and a strong United States jobs report.
The Dow Jones Industrial Average surged almost 750 points Friday, more than erasing its losses one day earlier, as a stock market hungry for good news received two morsels: a stronger-than-expected jobs report and comments from the Federal Reserve Chairman that signaled more flexibility in raising interest rates.
United States 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.
Trump has complained that the Fed has pushed rates higher despite the fact that there is no evidence that inflation was getting out of control.
"A solid set of job numbers and some comfortable words from the chairman of the Federal Reserve have been just the ticket to get markets into bullish mode", said Chris Beauchamp, chief market analyst at online trading platform IG. Courts in cases that involved other agencies have interpreted that language to not cover policy differences.
The Fed chairman, responding to a question about what he would do if Trump asked him to step down, said he would not resign.
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.
"Despite this dovish tone, we are skeptical", Schenker said in a note.
The Fed, which hiked benchmark US interest rates four times previous year 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.
He also added that the Fed was prepared to adjust its approach to interest rate hikes should that policy appear to cause problems with the economy. Markets, however, have mostly tumbled since October on fears of a global economic slowdown and the ongoing U.S. But some investors have anxious that that process could push long-term rates higher at a time when the economy was slowing.
In December, Powell said that the Fed's balance sheet reduction was on "autopilot".
Powell "said exactly what the markets wanted to hear", said Gregori Volokhine of Meeschaert Financial Services.
United States media reported that Trump has been asking his advisers whether he could remove Powell from the post.
Asked if any future meeting with Trump was scheduled, Powell said, "I have no news on that".