USA stocks rose higher on Wednesday after Federal Reserve Chairman Jerome Powell said that the gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track. The move was not only fueled by massive monthly jobs growth which blew away the estimates, but also a bigger-than-expected rise in wage growth.
By Rich MillerFederal Reserve Chairman Jerome Powell has managed to assuage fickle financial markets by muddying the central bank's monetary message. The Fed has raised interest rates nine times since the end of 2015.
The major USA stock indexes finished sharply higher on Friday on the back of two key bullish events.
Echoing a more sympathetic tone recently espoused by some of his colleagues, Powell said the Fed was "listening" to markets and would balance the steady flow of strong economic data against the array of risks - from slowing global growth to worries about the U.S.
That formulation was a lot less clear than just over two weeks ago, when Powell highlighted policy-maker projections of two rate increases this year, on top of the four in 2018, and said he didn't see the Fed changing its balance sheet plans.
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.
At the same time, he reassured investors of the Fed's flexibility.
The Fed chief stressed that the economy remained on track and that the job market was quite strong.
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".
Overall, she said she felt the Fed was in a "really good spot".
The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement. He also said that he would not resign if asked to do so by U.S. President Donald Trump.
Powell's appearance in Atlanta was his first since last month's rate increase and a public lashing from Trump, who according to sources asked aides about his power to fire the Fed chairman.
Traders said Powell's comments were perceived as dovish because he said the Fed had no preset path for policy and could be patient when it comes to future interest rate hikes. Sliding equity prices, weakness overseas and mixed economic data at home have prompted calls for the Fed to put rates on hold, but the USA labor market remains red-hot.
The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion in assets.
"Longer-term bonds have sold off here today in price", said Tim Ghriskey, chief investment officer at Inverness Counsel in NY.