Fed Chairman Jerome Powell took a mulligan on Friday, offering a much more dovish and flexible Fed policy outlook than he did after the Dec. 19 rate hike. Powell said that quantitative tightening won't remain on autopilot. As Powell spoke, the Dow Jones and broader stock market extended strong gains as Wall Street rebounded from Thursday's drubbing.
X
When asked if he would resign at the request of President Trump, who has been criticizing the Fed chief and even reportedly asked about firing him, Powell also said no.
Powell spoke after the December jobs report blew away Wall Street estimates with a gain of 312,000 jobs and 3.2% wage growth. The jobs data gave support to Powell's confidence in the economic outlook, a day after the ISM manufacturing index saw its sharpest fall since 2008.
But Powell said that the financial markets are sending "conflicting signals." He said the Fed is ready "to adjust policy quickly and flexibly and to use all of our tools," including its balance sheet.
While Powell said that the Fed is now listening carefully to markets, he doesn't necessarily agree with the criticism of the Fed's balance-sheet wind-down. Still, he said the Fed will continue to examine how markets are responding to it, adding that the central bank wouldn't hesitate to change course if the balance sheet policy was becoming a problem.
Because Powell isn't ready to throw in the towel on Fed rate hikes this year, an early phase-down of quantitative tightening is the most logical step to combat uncertainty over global growth and trade friction. There's not much Powell can do to ease investor concern about rate hikes. That's because, even after the bodacious jobs numbers, markets were pricing in only about a 2% chance of a rate hike in 2019.
By Friday's close, with the Dow Jones up 3.3%, the S&P 500 index 3.4% and the Nasdaq composite 4.3%, the odds of a rate in 2019 rose to 6%.
Fed Chief Walks Back 'Autopilot' Remark
Powell arguably punched the ticket for the sagging S&P 500's trip into bear market territory on Dec. 19. That's when the Fed stubbornly stuck to script, raising rates for the fourth time in 2018. Powell added insult to injury with his post-meeting press conference, stating that the Fed's unloading of Treasuries and mortgage securities would continue on "autopilot."
Those assets were bought via quantitative easing to help the economy recover from the financial crisis. The idea was to hold down interest rates and encourage investors to take on risk.
At present, the Fed is unloading up to $50 billion in assets per month as the securities reach maturity. To some extent, this quantitative tightening encourages investors to put money into risk-free government securities, rather than riskier stocks and bonds. Market strategists blamed Powell's Dec. 19 comment that the balance-sheet unwind was on "autopilot" for the post-meeting stock sell-off.
While it's unclear how negative those purchases are, the Fed appears to be aligned against the stock market as economic growth cools and stocks hit bear market territory.
YOU MIGHT ALSO LIKE:
Stocks Surge On China, Jobs Data And A Dow Stock Upgrade
When Should Long-Term Apple Holders Sell?
Federal Government Shutdown Could Hit These Tech Stocks But Spare Security
Want More IBD Videos? Subscribe To Our YouTube Channel!
IBD Stock Of The Day: O'Reilly Auto Parts Flashes 2 Bullish Signals, Nears Buy Point
The post Fed Chairman Powell Gives Dow Jones A Reason To Smile — But Not Trump appeared first on Investor's Business Daily.
http://feedproxy.google.com/~r/BusinessRss/~3/p9eWHqHLUAA/
No comments:
Post a Comment