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FOMC Chairman Jerome Powell stated that the Fed would be patient with rate hikes in 2019, perhaps contributing to a subsequent recovery in the embattled stock market. Powell did not mince words, stating that stating that he would not resign if President Trump asked him to.

The remark was made amid ongoing market volatility, with many market participants blaming the stock market decline on the Fed’s monetary policy of increasing interest rates.

Key Takeaways

• Powell indicated that the Federal Reserve would adjust policy without hesitation if economic growth slowed in 2019, assuaging fears of excessive rate hikes.
• The Federal Reserve Chairman cited a strong labor market, ongoing expansion, and 2% inflation as the primary aims of the central bank’s monetary policy.
• Powell pointed to 2016 when four rate hikes were planned but only one was implemented due to tightening economic conditions.
• Powell stated that he had received no direct communication from the White House regarding his performance.

Speaking at the American Economic Association’s annual meeting in Atlanta and joined in his roundtable discussion with two former FOMC chairs Janet Yellen and Ben Bernanke, Powell stated that the central bank would not simply plow ahead with initially planned monetary policy if economic conditions changed, painting a more flexible and accommodating picture of the bank’s outlook.

Flexible Policy

Powell used 2016 as an example of the central bank’s ability to drastically adjust monetary policy to accommodate changing conditions, with only one of four planned rate hikes approved that year.

“No one knows whether this year will be like 2016,” said Powell. “But what I do know is that we will be prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy should that be appropriate to keep the expansion on track, to keep the labor market strong and to keep inflation near 2 percent.”

He also stated that “there is no preset path to policy, and particularly with muted inflation readings that we’ve seen coming in, we will be waiting as we watch to see how the economy evolves.”

"We have unemployment under 4% for nine months now [while 100 million working age people are not working.]"

--Jerome Powell

— Dave Collum (@DavidBCollum) January 4, 2019

Trump vs Powell

Powell also firmly stated that he would not resign if asked to do so by President Trump, simply responding with “no” when the question was posed by the meeting’s moderator.

President Trump has been highly critical of the Federal Reserve’s monetary policy and of Powell’s personal performance since taking over the central bank, stating at one point that the central bank was “going loco” due to the ongoing rate hikes introduced throughout 2018.

Powell pointed out that the feedback had taken place through the media only and that no direct communication had passed between the White House and the Federal Reserve regarding monetary policy, and that no meeting between the two groups was scheduled. He answered the question of whether he would meet President Trump to discuss future policy somewhat cautiously, saying “I would say that meetings between presidents and Fed chairs do happen.”

Expert Outlook

Former Fed chairman Ben Bernanke agreed with the suggestion that President  Trump’s approach to the Federal Reserve was problematic, expressing his confidence in the central bank and stating that “everyone would be better off if it was clear that the Fed is making its decision based on its mandate and on its assessment of long-term needs in the economy”

Market Reaction

Gold ticked slightly upwards following the meeting, currently down 0.60% and trading in the mid-range of today’s session at $1,284.06/oz following a high of $1,298.29/oz and a low of $1,277.39/oz. Gold looked on course to test the $1,300/oz line of resistance earlier today, but it’s likely that unexpectedly strong labor market data tempered today’s performance.