Ep 53: What Fed Chair Powell Said And What The Markets Heard

Yields on 10-year government bonds ended at 7.72% compared to Tuesday’s close of 7.67
Yields on 10-year government bonds ended at 7.72% compared to Tuesday’s close of 7.67
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03 March, 2018

After his comments highlighting the strengthening economy roiled financial markets on February 27 amid concerns the Federal Reserve would raise interest rates at a faster pace, Powell made it clear that gradual rate hikes would allow the economy to continue to expand. The next FOMC meeting, Powell's first as Fed Chair, will be March 20-21.

Rather, "the robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in USA exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment", he said.

Federal Reserve Chairman Jerome Powell said he sees no signs the USA economy is overheating and reiterated the central bank will continue to raise rates gradually to keep unemployment and inflation in balance. The Australian dollar dropped after business investment unexpectedly fell in the final three months of a year ago. On Thursday, Powell will deliver more testimony in front of the Senate Banking Committee.

"Some of the headwinds the United States economy faced in previous years have turned into tailwinds", he added, noting recent fiscal policy shifts and a global economic recovery. In addition, the labor force participation rate remained roughly unchanged, on net, as it has for the past several years - that is a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate. Looking forward, he commented "the next couple of years look quite strong". The economic analysts are looking for consensus of 0.3 percent, down from 0.4 percent in the prior month. African Americans and Hispanics (at or below pre-recession rates).

Australian shares tumbled. The benchmark S&P/ASX 200 shed 42.70 points or 0.71 percent to finish at 5,973.30 while the broader All Ordinaries index ended down 41.60 points or 0.68 percent at 6,075.70.

In Asia, shares slipped on Wednesday in morning session, but losses were restrained despite the sharp pullback in USA stocks after Powell's comments to Congress.

The Fed's Money supply for the week will be released at 4.30 pm ET.

More news: Temperatures plunge as 'beast from the east' takes hold of country

That drew another critical volley from Warren, the Massachusetts Democrat who is among Wall Street's fiercest critics.

The Fed is expected to lift rates again next month, having held them in January at the final meeting presided over by Mr Powell's predecessor Janet Yellen.

Powell, 65, gave his first congressional testimony as chairman this week.

But the talk of a slight rise in the interest rate did not cause a panic in the stock market.

U.S. economic growth slowed slightly more than initially thought in the fourth quarter after the strongest pace of consumer spending in three years depleted inventories and drew in imports as businesses struggled to produce enough goods and services. "You saw some reaction, but not a dramatic one". There is also now a very good chance that we could see as many as four rate increases. It remains below 2%, the level the Fed considers healthy for the economy.

There have been concerns that the recently enacted tax cuts touted by Trump would over-stimulate the economy and spark too much inflation. They thought it made it more likely the Fed will increase rates faster.

"By continuing to gradually raise interest rates over time we are trying to. achieve inflation moving up to target, but also make sure that the economy doesn't overheat", Powell said.


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