US stocks closer higher amid Fed's signals of gentler monetary policy

US stocks closer higher amid Fed's signals of gentler monetary policy

Federal Reserve Chairman Jerome Powell on Friday sought to ease market concerns that the USA central bank was ignoring signs of an economic slowdown, saying he was aware of the risks and would be patient and flexible in policy decisions this year.

Those back-to-back market-friendly developments helped United States and European stock bourses surge higher and set aside for now nervousness over trade wars, a U.S. government shutdown and a slowing economy that have pressured stocks for most of the last month.

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". "With the muted inflation readings we have seen coming in, we will be patient as we watch to see how the economy evolves".

Trade uncertainty and concerns about global growth seem to be an important factor in the recent US weakness: tariff worries have surfaced repeatedly in Fed surveys. But some investors have anxious that that process could push long-term rates higher at a time when the economy was slowing.

The President has repeatedly criticized the Fed's increasing monetary restrictions and interest rates, which he blamed for the market drop in a phone call with Fox News host Shannon Bream in October.

Here's a run-down of the data that have - and haven't - changed since the Fed chief briefed the media on December 19 after policy makers raised rates and signaled two more hikes in 2019.

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"We really need to be looking at the data and having the economy tell us, do we need to move more?" We need to be very vigilant. Since then, the Federal Reserve chairman has received several reasons to temper his assessment. The question is whether or not we can take out 2600 at this point, which we still have a way to go. We need to be on our toes. "The Fed has wilfully ignored trade and interest rate risks while talking a hawkish game".

Futures traders on Friday were pricing in a small chance of a rate hike this year, versus no chance seen before Powell began speaking. Echoing that assertion, the central banker said at the Atlanta event that the Fed was ready to change course "significantly if necessary".

The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement.

At the conference on Friday, Mr Powell said he has not spoken directly to Mr Trump and would not resign if asked.

The recent market turbulence has posed a dilemma for the Fed, as a seeming loss of confidence in financial markets about the USA economy's prospects was offset by upbeat data from the real economy, including a strong December jobs report.

Stocks were already trading higher after the release of December labor data that showed job and wage growth were still solid despite the market's effort to convince investors otherwise. "The strong December jobs report is a net positive for stocks because investors' biggest concern has been slowing growth".