Sunday, 24 June, 2018

US Fed chair says he sees no evidence of overheating

NASDAQ 100 daily chart NASDAQ 100 daily chart
| 03 March, 2018, 00:41

USA stocks have been under pressure since Powell's testimony Tuesday suggested the central bank could accelerate rate increases amid stronger growth and a resurgence of inflation.

The markets did not respond to Powell's prepared testimony, but then moved sharply down, with the Dow finishing lower by nearly 300 points for the day on Tuesday, in response to his replies to questions. In their most recent set of projections, Fed officials in December penciled in three hikes in 2018. He said that the Fed "has seen incoming data which suggests strength in the economy".

"We got in and out of monetary policy concerns pretty well and this caught us by surprise", said Art Hogan, chief market strategist at B. Riley FBR in NY. He said that the Fed expected inflation to move up this year and then stabilize around the Fed's 2 percent target. "We also saw a big increase in employment, which bodes well". "And we've seen fiscal policy become more stimulative".

Unicredit analysts agreed. They said that while markets might price in higher US interest rates, these would likely remain modest and also hinge on economic data staying robust.

US benchmark 10-year Treasury notes last rose 9/32 in price to push yields lower to 2.8351 percent.

Most of the measures indicated that workers' wage continued to grow about 2.5 percent.

Still, the energy group rose, helped by a 1.8% gain for the shares of Canadian Natural Resources to $40.45 after the company reported Q4 profit that beat estimates.


Disney, which had been in line to become the ultimate owner of the Sky assets through a deal with Fox, shed 4.5 percent amid the prospects of a bidding war.

Making his first public comments as leader of the nation's central bank, Powell depicted an economy that was gaining strength and stressed that he meant to follow the approach to interest rates set by his predecessor, Janet Yellen.

The current framework "is working, the market understands it", Powell said.

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

Another significant aspect of Powell's testimony was that he steered away from expressing any concern about inequality, in contrast to his predecessor Janet Yellen, who had made reference to it.

Pressed by some Democratic lawmakers about the impact of inequality on the economy, the gap in unemployment rates between whites and blacks, and on the economic implications of stricter immigration, Powell largely recited the Fed's commitment to its goal of maximizing employment with stable prices. Regulations on smaller banks would also be lessened. Its shares rose 1.4% to $75.00.

However, there are fears that over the longer term the ultra-low interest rates since the global financial crisis of 2008 may leave the Fed without sufficient fire power to combat any significant downturn in the United States economy, and so it should start raising rates now. The Commerce Department data showed nominal consumer spending grew 0.2 percent in January, matching the median forecast in a Bloomberg survey, and following a 0.4 percent gain. The meeting of the rubber-stamp parliament's 3,000-plus delegates is mainly ceremonial but China's communist leaders use it to publicize new initiatives and set the tone for the year's development plans.

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