Economy

Federal Reserve's Powell seeks to reassure markets

Federal Reserve's Powell seeks to reassure markets”

US stocks were pummelled on Thursday after Apple slashed its revenue forecast due to weak demand in China and a report showed US manufacturing activity slumping to a two-year low, reviving fears about a global economic slowdown in the wake of the US-China trade war.

A new jobs report on Friday showed U.S. employers added more than 300,000 jobs in December - well above expectations.

"We've been willing to revisit our views, very much willing to revisit our views, of what the natural rate is, and also our understanding of what it is", Powell said.

The data come amid debate on whether the US Federal Reserve has been too aggressive in hiking interest rates and should back off in 2019.

Mr Powell said he thought the recent market declines reflected concerns about slowing global growth and trade tensions - but are "well ahead of the data".

U.S. President Donald Trump has called the Fed's rate hikes a mistake and said he was not happy with Powell.

Yellen, the Fed chair from 2014 to 2018 before Trump replaced her with Powell last February, said: "Obviously, the president has the right to comment on the Fed, but I would worry that if it continues or intensifies that it could undermine confidence in the Fed - and the market confidence in the Fed's judgment".

"We will be patient as we watch to see how the economy evolves", he said. "Can we wait?", Cleveland Federal Reserve Bank President Loretta Mester said in an interview with Reuters.

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.

"Fundstrat's Thomas Lee writes that the move diminishes the risk of Fed policy error going forward: "He would go further and say risk is now "'off the table' but those would be famous last words".

Futures traders on Friday were pricing in a small chance of a rate hike this year, versus no chance seen before Powell began speaking. As well it should have, says Lynch, who expects a "U.S".

"The markets are feeling better that the Fed is not strangling the overall economy and perhaps forcing it into a recession, and that removes a monetary policy concern that has been hanging over the market for the past few months", said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC.



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