US Fed's Powell seeks to reassure markets, assert independence

Heather SCOTT
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Wall Street was cheered by Fed chief Jerome Powell's comments, bouncing 3% before midday and recovering much of Thursday's lost ground

Wall Street was cheered by Fed chief Jerome Powell's comments, bouncing 3% before midday and recovering much of Thursday's lost ground (AFP Photo/SPENCER PLATT)

Washington (AFP) - US Federal Reserve Chairman Jerome Powell tried to reassure financial markets on Friday that rising interest rates were not locked in and reasserted the central bank's independence, saying he would not resign even if President Donald Trump asked him to.

The dovish comments sent US and global stock markets surging higher, recovering some of the territory lost in recent weeks.

Trump named Powell to the helm of the Fed at the start of the year but has been a frequent and vocal critic, blaming Powell and the Fed for raising rates which he says pose a threat to his economic agenda -- an unprecedented public berating that breaks with recent norms.

Asked at an economic conference in Atlanta if he would step down should Trump request his resignation, Powell said, "No."

He said he had not heard directly from Trump despite the president's many recent Twitter outbursts, and repeated that the institution remained outside political considerations.

"People should know the Fed has a very strong culture around non-political activity and we are committed to achieving the goals the law gives us in a completely non-political way based on the best thinking," Powell said.

US and global stock markets have tumbled in recent weeks and 2018 was Wall Street's worst year in the decade since the global financial crisis amid worries about the slowing world economy, trade tensions and rising interest rates.

And Trump's attacks added to the jitters, since it could cause the Fed to tighten policy just to prove its independence.

- 'No pre-set path' -

But Powell once again stressed that the Fed had no "pre-set" plan for interest rates and would bide its time to see how the economy evolves.

The Fed's policy committee raised the benchmark lending rate four times last year but signaled last month it expected only two increases this year, rather than three.

There is "no pre-set path for policy and particularly with the muted inflation themes coming in we will be patient as we see how the economy evolves," Powell said.

And the Fed is prepared to adjust policy "quickly" and "significantly" to support the economy if needed, he added.

Powell remained upbeat about US economic prospects in the near future, pointing to the strong data -- including a blockbuster jobs report for December released Friday -- but noted financial markets were worried about a slowdown in the US and Chinese economies.

The sharp decline in manufacturing sentiment in December prompted Wall Street to drop sharply on Thursday.

But on Friday, following a big jump in December's job creation and Powell's reassuring words, exchanges in Frankfurt, Paris and London all closed with solid gains and the blue-chip Dow Jones Industrial Average ended the final session of the week with a gain of 3.3 percent.

And even the 3.2 percent jump in wages in 2018 did not set off alarm bells for inflation, Powell said, reinforcing the clear signal that policymakers were in no hurry to clamp down on rising prices.

"We're listening carefully...to the message that markets are sending and we'll be taking those downside risks into account as we make policy going forward," he said.

Economist Chris Low of FTN Financial said the Fed chief's comments were "not dramatically different" from statements he made last month "but it was different enough to calm the stock market."

Another factor that had been worrying markets was the Fed's system of reducing its massive securities holdings that were built up during the crisis to shore up markets.

But Powell said the Fed "we wouldn't hesitate to change it" if the pace of the selloff became a problem.

Low said the comments were "subtle things" but "these are the big things investors needed to hear."