WRAPUP 2-Powell tells markets Fed is flexible and aware of risks

WRAPUP 2-Powell tells markets Fed is flexible and aware of risks

WRAPUP 2-Powell tells markets Fed is flexible and aware of risks

The Dow Jones Industrial Average on Friday jumped to a fresh peak as a trio of bankers, headlined by current Chairman Jerome Powell, underscored the health of the US economy but also expressed an attentiveness to a market that has grown fragile amid a spate of interest-rate increases.

On Friday, the Labor Department reported the United States added 312,000 jobs in December, much above analyst expectations.

"We're hearing a lot from different groups of people about the role that the balance sheet normalisation may be playing in the markets, " Powell said.

Powell's comments alleviated some worries that the Fed's course of monetary tightening may be too aggressive in the event of an economic slowdown.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move.

"By delivering what traders wished to hear regarding policy flexibility, Chairman Powell managed to interrupt a self-feeding market selloff that risked contaminating economic fundamentals, " Mohamed El-Erian, chief economic adviser at Allianz SE and a Bloomberg Opinion columnist, said in an email.

The S&P closed up 3.4 percent.

Dallas Fed President Robert Kaplan said on Thursday that planned rate hikes should be halted for now, while on Friday Mester said she sees only one or two rate hikes this year.

Stocks surged on Friday after the Labor Department reported USA firms created 312,000 jobs in December, and Powell said the Fed would be flexible in deciding on any further rate increases.

Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening.

The Fed chief stressed that the economy remained on track and that the job market was quite strong.

Many analysts are girding for a rocky year for markets, owing to the US-China trade war and other unresolved matters, including a government shutdown fight in Washington that President Donald Trump warned Friday could last years as he battles for funding for a border wall with Mexico. Under the law that governs the Federal Reserve, a president can only remove a Fed chairman for cause. Powell responded with a terse "No" when asked if he would resign if Trump requested him to do so.

Powell triggered an acceleration in the selling pressure when he said, "As always, there is no preset path for policy".

"This employment report suggests the U.S. economy still has considerable forward momentum". But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion. No face-to-face meetings have been scheduled, he added. He also said that the central bank would be willing to "adjust" policy if it disrupted the market or created adverse financial conditions, running against the central bank's statutory goals.

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