Federal Reserve Chairman Jerome Powell on Friday sought to ease market concerns that the USA central bank was ignoring signs of an economic slowdown, saying he was aware of the risks and would be patient and flexible in policy decisions this year.
Employment data showed the USA added 312,000 jobs in December, much above analyst expectations, strengthening the case of those who have argued that markets have overreacted to signs that U.S. growth may have peaked. Sellers were also driven by a dramatic shift in the tone of U.S. Federal Reserve Chairman Jerome Powell, who reversed his hawkish tone from December to dovish.
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.
Powell and his colleagues at the USA central bank are weighing conflicting signals on the US economy as they try to ensure that the Fed achieves its congressional mandate of low, stable inflation and full employment over the long term. "We're hearing a lot from different groups of people about the role the balance sheet normalization may be playing in the market", Powell said.
The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement. That could lead to renewed turbulence as the Fed and other central banks seek to normalise monetary policy at a time of cross currents in the global economy. He also said that he would not resign if asked to do so by U.S. President Donald Trump.
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At the conference on Friday, Mr Powell said he has not spoken directly to Mr Trump and would not resign if asked.
"We will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track", he said, adding "there is no pre-set path for policy".
When asked where the smart money would go - would it go to China after the warning Apple gave or would it chase developed markets after the jobs report, he said, "The smart money will be rethinking this whole idea that the global economy is slowing down and my guess it want take much to get the risk on trade back in play again".
Federal Reserve Chairman said the central bank can be patient as it assesses risks to a USA economy with good momentum and will adjust policy quickly if needed.
The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion in assets.
"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 said.