Jerome Powell Pledged Allegiance to Data and Some of It Looks Grim

Daniel Fowler
January 7, 2019

Equities around the globe rallied on Friday while bond yields rose after sharply declining earlier in the week as USA employment data pointed to economic strength and Federal Reserve chair Jerome Powell said the United States central bank would be patient with monetary policy.

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.

Powell "said exactly what the markets wanted to hear", said Gregori Volokhine of Meeschaert Financial Services.

The December job report also indicated that unemployment rate was up 0.2 percentage point month-on-month to 3.9 percent, and that average hourly earnings for all employees on private nonfarm payrolls rose 11 cents, or 0.4 percent over November, to 27.48 US dollars.

When asked whether he would comply with a resignation request by Trump, Powell said, "No".

Earlier on Friday, the Labor Department reported that nonfarm payrolls jumped by 312,000 jobs, well above market expectations, while wages and labor force participation rose, all signals of sustained economic strength. "It's a good message for the market that is starting to consume itself out of fear". Stocks saw the worst December rout since the Great Depression and a few near-term Treasury security yields have crept above their longer-term counterparts since Powell's December press conference, a sign that investors were pessimistic about the outlook for growth.

"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".

Massport monitors TSA staffing at Logan during government shutdown
TSA employees are expected to work without pay during the shutdown because they are considered essential . Which, as of Thursday, average screening times still met those requirements.

Powell called the December jobs report "very strong" and said US data seems "to be on track to sustain good momentum into the new year".

A report Friday from JPMorgan Chase said trends in financial markets suggest investors have priced in around a 60 percent chance of a recession, while economists have put the odds of a recession within one year at around 40 percent.

"Markets are expressing concerns about global growth in particular and trade negotiations", Powell said.

While it's not a real-economy measure, the Fed closely watches market volatility because it can feed through to consumer and business sentiment and the real economy. The president has accused Powell of hurting the economy by raising interest rates.

The Fed had increased the size of its balance sheet four-fold to a record $4.5 trillion in an effort to push long-term interest rates lower.

Powell told the panel in Atlanta that he has not received any communications from the White House so far and has not scheduled a meeting with Trump.

In response to the observation that the Treasury issues more securities when the Fed's balance sheet holdings mature, Powell said, "We don't believe our issuance is an important part of the story in the market turbulence that began in the fourth quarter of previous year".

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