Strong December hiring unlikely to change Fed's policy stance

Strong December hiring unlikely to change Fed's policy stance

In a session emblematic of the elevated volatility that has gripped markets for weeks, all three major USA stock indexes surged more than 3 percent in one of the broadest advances in years.

The main catalysts for the surge were the monthly US payrolls report, which blew past economists' forecasts with the largest number of jobs created in 10 months, and comments by the Fed's Powell.

He also added that the Fed was prepared to adjust its approach to interest rate hikes should that policy appear to cause problems with the economy.

He added that the United States central bank would not hesitate to adjust its balance sheet reduction plan if it causes problems in the markets.

Stocks surged further, with Wall Street up more than 3%, after Powell said policymakers were paying attention to market activity and would be flexible in deciding future interest rate hikes and reducing the Fed's balance sheet.

A new jobs report on Friday showed USA employers added more than 300,000 jobs in December - well above expectations.

"But it's the first time (Powell has) said anything that's dovish enough for the markets' liking".

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Powell triggered an acceleration in the selling pressure when he said, "As always, there is no preset path for policy". The Fed chairman, responding to a question about what he would do if Trump asked him to step down, said he would not resign.

Powell called the December jobs report "very strong" and said US data seems "to be on track to sustain good momentum into the new year". "With the muted inflation readings we have seen coming in, we will be patient as we watch to see how the economy evolves". The Dow Jones industrial average was up around 700 points near the close. "Average hourly earnings moved up and that's quite welcome and also for me at this time does not raise concerns about too-high inflation", he said.

Echoing a more sympathetic tone recently espoused by some of his colleagues, Powell said the Fed was "listening" to markets and would balance the steady flow of strong economic data against the array of risks - from slowing global growth to worries about the U.S.

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.

Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening.

"I'll just say that we are listening carefully to that ..., listening sensitively to the message that markets are sending, and we are going to be taking those downside risks into account as we make policy going forward".

Mr Powell said that he did not believe the Fed's removal of stimulus by shrinking holdings of Treasuries and mortgage-backed securities played a major role in the recent market turmoil.

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