Dovish Fed Chief Powell Delivers What the Markets Wanted

A street sign Wall Street is seen outside New York Stock Exchange in New York City New York

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.

Employment data showed the United States added 312,000 jobs in December, much above analyst expectations, strengthening the case of those who have argued that markets have overreacted to signs that U.S. growth may have peaked.

"Despite this dovish tone, we are skeptical", Schenker said in a note.

Powell triggered an additional surge in the markets after he walked back the comment made in December that shook up investors and made him sound like his sole mission was to reduce the central bank's balance sheet.

The Fed, which hiked benchmark US interest rates four times a year ago including in December, is however not on a preset path and could pause policy tightening as it did in 2016 when global growth concerns led to doubts about the USA economic recovery, he said.

Stocks could be further pressured when companies report quarterly earnings later this month, according to DataTrek Research Co-Founder Nicholas Colas.

That robust figure, however, will not as of now change the Fed's plan to conduct two rate hikes this year, as the central bank awaits more economic indicators coming in the next few months.

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In the cash market, the benchmark S&P 500 Index settled at 2531.94, up 84.05 or +3.17%. The Fed said in December it anticipated raising rates twice in 2019.

The Fed chief stressed that the economy remained on track and that the job market was quite strong. That flexibility, he added, applied as well to the monthly reductions to the Fed's balance sheet. This response no doubt helped the market to recover on Friday. Under the law that governs the Federal Reserve, a president can only remove a Fed chairman for cause.

"The market's been grappling with growth, the Fed and China", said Tony Roth, chief investment officer at Wilmington Trust in Wilmington, Delaware. "We're always prepared to shift the stance of policy and to shift it significantly if necessary".

The pace of Fed rate hikes and the lowering of the balance sheet, which tends to put upward pressure on interest rates, had both been concerns of investors in recent months.

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.

A strong jobs report from the Bureau of Labor Statistics also likely quelled some fears that the U.S.is part of a broader economic deceleration.

"Nothing's been scheduled, I would say that meetings between presidents and Fed chairs do happen", he told moderator and New York Times reporter Neil Irwin.

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