Sun, Jan 06, 2019 - Page 16 News List

US Fed chair seeks to reassure markets

UPBEAT ON PROSPECTS:Powell said that the Fed has a strong non-political culture and would take its time to see how the economy evolves, as it has no preset strategy


US Federal Reserve Chairman Jerome Powell tried to reassure financial markets on Friday that rising interest rates were not locked in and reasserted the central bank’s independence, saying that he would not resign even if US President Donald Trump asked him to.

The dovish comments sent US and global stock markets surging higher, recovering some of the territory lost in the past few weeks.

Trump named Powell to the helm of the Fed at the start of the year, but has been a frequent and vocal critic, blaming Powell and the Fed for raising rates which he says pose a threat to his economic agenda — an unprecedented public berating that breaks with recent norms.

Asked at an economic conference in Atlanta if he would step down should Trump request his resignation, Powell said: “No.”

He said he had not heard directly from Trump despite the president’s many recent Twitter outbursts, and repeated that the institution remained outside political considerations.

“People should know the Fed has a very strong culture around non-political activity, and we are committed to achieving the goals the law gives us in a completely non-political way, based on the best thinking,” Powell said.

Powell once again said that the Fed had no “preset” plan for interest rates and would bide its time to see how the economy evolves.

The Fed’s policy committee raised the benchmark lending rate four times last year, but signaled last month that it expected only two increases this year, rather than three.

There is “no preset path for policy and particularly with the muted inflation themes coming in we will be patient as we see how the economy evolves,” Powell said.

The Fed is also prepared to adjust policy “quickly” and “significantly” to support the economy if needed, he added.

Powell remained upbeat about US economic prospects in the near future, pointing to the strong data — including a blockbuster jobs report for last month released on Friday — but noted financial markets were worried about a slowdown in the US and Chinese economies.

The sharp decline in manufacturing sentiment last month prompted Wall Street to drop sharply on Thursday. Yet on Friday, following a big jump in job creation and Powell’s reassuring words, stock exchanges in Frankfurt, Paris and London all closed with solid gains and the blue-chip Dow Jones Industrial Average ended the final session of the week with a gain of 3.3 percent.

Even the 3.2 percent jump in wages last year did not set off alarm bells for inflation, Powell said, reinforcing the clear signal that policymakers were in no hurry to clamp down on rising prices.

“We’re listening carefully … to the message that markets are sending and we’ll be taking those downside risks into account as we make policy going forward,” he said.

The Fed chief’s comments were “not dramatically different” from statements he made last month, “but it was different enough to calm the stock market,” FTN Financial economist Chris Low said.

Another factor that had been worrying markets was the Fed’s system of reducing its massive securities holdings that were built up during the global financial crisis to shore up markets.

However, Powell said the Fed “wouldn’t hesitate to change it” if the pace of the sell-off became a problem.

Low said the comments were “subtle things,” but “these are the big things investors needed to hear.”

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