Powell Fed briefly destabilizes markets


Washington (More Bank) – US markets, already nervous, have temporarily fallen on Thursday as a result of another comment by US Federal Reserve Chairman Jerome Powell.

The head of the central bank has been exceptionally outspoken in recent weeks with comments that seemed meant to calm nervous investors, but a flippant comment during an event on Thursday had the opposite effect.

After five days of gains, the Dow Jones Industrial Average benchmark briefly dropped more than 250 points from the day's high after Powell said the Fed's large holdings of securities should be "significantly smaller than the current level, which was less than $ 4 trillion.

Despite its broadly optimistic view of the US economy and clear signals, the Fed will be patient about raising interest rates – statements that helped stocks recover – markets were focused on these two words.

At the close, Wall Street ended the day strongly, but it does not take much for investors to get out of the way, as the markets are already afloat and worried that the global economy will slow down, as rates of interest rise and that uncertainties about the US-China trade war.

Investors fear that the sale of Fed securities will lead to higher borrowing costs, even if the Fed's benchmark lending rate remains unchanged.

However, in prepared remarks released Thursday in New York, Fed Vice President Richard Clarida reiterated the central bank's assurance that if necessary she could stop or slow down the draw of her holdings in New York. securities.

The central bank "will not hesitate to make changes" to its balance sheet policy in the event of a change in the economic situation, said Clarida.

Powell had swept the markets in early October when he had indicated that several other rate hikes were likely. Since then, along with other senior officials, he has made several statements with more appeasing comments.

On Thursday, the Fed chief again stressed that policymakers could take the time to assess the economy before deciding on any further rate movements.

Asked about expectations for the Fed's monetary policy meeting this month, Powell said, "You should anticipate that we will be patient, watch, and wait and see."

After the Jan. 30 announcement, Powell will hold a press conference after each meeting, instead of just four times a year, which will give him even more opportunities to try and communicate with the financial markets.

He remains optimistic about the US economy, saying that inflation is expected to remain close to the Fed's 2% target set and that he does not see the risk of it. a short-term US recession.

However, he acknowledged the concerns reflected in global stock markets and said the Fed had "the ability to be patient and know which of these two stories was going to be the story of 2019."

– Long stoppage –

He also warned that closing the government, if it continued for a long time, would have a negative impact on the US economy.

Although most of the previous shutdowns were quite short and did not affect the entire economy, Powell said: "If we proceed with an extended shutdown, I think it would be pretty clear in the data. . "

The US government is partially closed since late December, with President Donald Trump refusing to sign a budget deal unless Congress grants more than $ 5 billion for the construction of a border wall .

Approximately 800,000 federal workers, including air traffic controllers and Coast Guard members, have been without pay for three weeks.

"In the short term, if government closures do not last very long, they usually have not left a lot of marks on the economy," Powell said.

S & P Global Ratings estimated the closure would cut US GDP by 0.05 percent each week.

Powell also worried about the lack of key economic statistics during the government shutdown, which the Fed uses to take the temperature of the economy, such as retail sales and GDP growth. .