Federal Reserve Chairman Jerome Powell said Friday that he will not resign if asked to do so by President Donald Trump, a message that heartened investors who had been concerned by Trump's repeated attacks on his hand-picked choice to lead the nation's central bank.
Alongside past Fed chairs Janet Yellen and Ben Bernanke, Powell reiterated much of what he has said in the past few months concerning monetary policy. Home prices are still rising, but the latest S&P CoreLogic Case-Shiller index showed that gains continue to moderate.
"We have unemployment remaining below 4 per cent for nine months now, one of the longest periods since the mid-1960s", Powell said. Stocks have been pressured since mid-December when the Fed raised its benchmark interest rate a quarter-point while issuing a somewhat-hawkish statement despite lowering its rate hike projections from three to two. Data released earlier on Friday showed US employers added the most workers in 10 months as wage gains accelerated. It was one simple word but it resonated strongly in media reports. Powell also acknowledged that inflation was muted and that the central bank would be in no hurry to raise rates.
"This seemed like a pretty well-coordinated message", said Julia Coronado, president of Macropolicy Perspectives LLC in NY. He expects the tone could tilt slightly dovish without actually signaling a pause. That suggests the Fed won't tighten again in March, she said. He also said that the Fed could alter its approach to trimming its huge balance sheet if it determines such a change is needed.
"If we ever came to the conclusion that any aspect of our plans was somehow interfering with our attainment of our statutory goals, we wouldn't hesitate to change it, and that would include the balance sheet, " he said. "We don't believe our issuance is an important part of the story", he said. The president has accused Powell of hurting the economy by raising interest rates. The Fed chairman, responding to a question about what he would do if Trump asked him to step down, said he would not resign.
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 past year".
After talking about the upbeat labor market and wages, the world's most powerful central banker moved to the other mandate of the Fed: inflation.
Powell and his colleagues at the US central bank are weighing conflicting signals on the USA economy as they try to ensure that the Fed achieves its congressional mandate of low, stable inflation and full employment over the long term.
Powell denied the criticism that the Fed's gradual reduction of its holdings of Treasuries, mortgage bonds and other assets - amounting to 4.5 trillion dollars when the Fed began its balance sheet normalization program in October 2017 - had exacerbated the stock market turbulence in the fourth quarter of 2018.
The central bank will convene its first policy meeting this year on January 29 and 30, followed by a second at the end of March.