Federal Reserve Chairman Jerome Powell spoke Wednesday night (2300 GMT) and stock market bears were watching, hoping he would say something similar to his late September comments which some say ignited the current sell-off in U.S. equity markets. This was not the case, however, with the markets remaining relatively calm.
Powell didn’t hold back, however, with his commentary sounding as hawkish as ever on the U.S. economy and Fed policy, while acknowledging at the same time slower growth in the global economy.
The response from traders this time was more of a “we believe you”. In late September/early October, investors acted as if they had heard “the economy was strong, inflation was rising and rates were going to go up”, for the first time all year.
Powell Happy with Economy
Powell started his speech in Dallas by expressing confidence in U.S. economic strength, while saying markets will have to get used to the idea that the central bank could raise rates at any time starting in 2019.
This message was essential because there are still some there who think the economy is not strong enough to warrant such an aggressive stance by the Fed. This opening statement established Powell as an authority and the one in charge of the situation.
In an interview with Dallas Fed President Robert Kaplan, Powell said, “I’m very happy about the state of the economy now. Our policy is part of the reason why our economy is in such a good place right now.”
Powell Concedes Slow Pace of Global Economic Growth
Powell acknowledged the global economy is not growing at the same pace as it was in 2017. He described the global picture as a “gradual chipping away” at the pace of growth but said it is “not a terrible slowdown.”
Powell Worried About Current Debt Levels
The Fed Chair repeated concerns about the unsustainability of the current fiscal path with the U.S. Debt and deficits continuing to increase. The national debt is over $21 trillion and the budget deficit nearly $1 trillion a year.
Powell Refuses to be Drawn into Public Debate with Trump
Powell has maintained the Fed’s independence in the face of criticism from President Trump, but he stands behind his mandate.
“We have a very important job that Congress has assigned us: Serve the public,” he said. “That’s our sole focus. We don’t try to control things we don’t control. We try to control the controllable. We’re just trying to do our jobs, and we’re doing fine.”
Powell Made it Clear that Rate Hikes Will Continue
He said that in 2019, investors should know that the practice of the Fed only hiking rates quarterly, at meetings where the chair holds a news conference afterwards, will no longer be the case.
“Certainly all meetings are live now, there’s no question about it now,” he said.
“Over time, folks will get used to the idea that we can and will move at any meeting,” he added.
Fed to Continue to Monitor Financial Markets
“We have to be thinking about how much further to raise rates and the pace at which we will raise rates,” he said. “I think the way we will be approaching that is to be looking carefully at how the markets and the economy and business contacts will be reacting to our policy.”
Fed’s Goals Clearly Stated
Powell added, “Our goals will be to extend the recovery … and to keep unemployment low and inflation low. So that’s how we’re going to think about it.”
Not Too Worried About Stock Market Volatility
Powell said stock prices are “one of the many, many factors” used to assess the economy.
“A Strong U.S. Economy is Good for the Global Economy”
Powell ended his talk by saying, “Our mandate is for U.S. economic conditions – stable prices, maximum employment and financial stability, but it’s really important what happens around the world.”
This article was originally posted on FX Empire
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