U.S. Federal Reserve Chairman Jerome Powell on Friday signaled patience in the central bank's policy contemplation for this year despite a higher-than-expected job growth data released on the same day. Data released earlier on Friday showed USA employers added the most workers in 10 months as wage gains accelerated.
Speaking after months of volatility in world bond and stock markets, Powell avoided some of the communication missteps that in the past have roiled rather than calmed investors. Powell's comments relieved fears that the Fed may be making a policy error by tightening too fast.
The S&P 500 Index jumped 3.4 per cent on Friday in response, though the stock gauge is still off about 14 per cent from its September peak. The Fed said in December it anticipated raising rates twice in 2019.
"There is no pre-set path for policy", Powell said during an appearance at a conference of economists in Atlanta. But some investors have anxious that that process could push long-term rates higher at a time when the economy was slowing.More news: ASB Classic defending champion Roberto Bautista Agut claims Qatar Open title
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.
In December, Powell said that the Fed's balance sheet reduction was on "autopilot". Under the law that governs the Federal Reserve, a president can only remove a Fed chairman for cause.
Analysing the Fed statements, James Glassman, senior economist at JP Morgan said, "We have got very strong job news, the economy got lot of momentum to generate this kind of job news then why has the US Fed become cautious - it is because the inflation trends have been little more moderate". Asked if he had had any face-to-face meetings with Trump, Powell said he had not although he said previous Fed leaders have had discussions from time to time with previous presidents.
Powell's willingness to be flexible on interest rates was welcome news to investors, many of whom anxious that Fed chair risked cutting off the current economic expansion by continuing to raise interest rates despite signs the USA economy was cooling off a little. "Some years ago, we decided that rate policy was going to be the active policy tool and the balance sheet would be allowed to shrink gradually and predictably in the background", he said. "The Fed has wilfully ignored trade and interest rate risks while talking a hawkish game". In the first event, the Labor Department's December jobs report showed the economy added a robust 312,000 jobs.