But then he went on to list a number of “cross currents” buffeting the world – muted US inflation, global growth (with particular focus on China and Europe), trade tensions, the risks associated with trade tensions, the US government shutdown and, of course, the financial market turbulence seen last December following the Fed’s previous hike.
“The situation now calls for patience,” he said, referring to the prospect of further rate hikes. “I think it’s the right thing. I feel strongly that it is.”
The first possible conclusion from the Fed’s shift – and the most popular narrative – is that like a weary parent trying to soothe a tempestuous toddler, Powell has capitulated to the market, perhaps with a little nudge from US President Donald Trump.
Powell was quick to dismiss both suggestions, saying employment and economic growth remain the Fed’s only focuses.
But that didn’t stop all the old clichés coming out, with most economists declaring that Powell has “refilled the punchbowl” for markets by establishing the “Powell put” and taking further hikes off the table for now.
The second possible conclusion is that the Fed has real concern that US economic conditions are about to get pretty ugly, as those cross-currents grow more intense in the coming months.
But how likely is that?
Part of the answer might be provided by the current US earnings season, where the general sentiment is that profits and outlook statements have been better than some analysts and investors had feared.
That’s something of a low bar, to be sure. But the results from companies as diverse as 3M, Boeing, Schlumberger, Qualcomm, Philips and even Apple – which saw its stock surge despite delivering both lower-than-expected profit in the December quarter and a weaker than expected outlook for the March quarter – have been better than expected, or at least less worse.
Hours after Powell spoke, Facebook delivered a cracking result, shrugging off concerns about the way the platform is being manipulated to beat Wall Street estimates for both revenue and profit.
Microsoft’s result, which also released after market, was also pretty strong, with the only slight “weak” spot being growth in its Azure cloud computing business, which saw revenue rise at the same pace as in the September quarter – 78 per cent.
Tesla’s after market results, while hardly an economic bellwether, were also largely in line.
It’s also worth noting that even with December’s temper tantrum, Powell is revving a US market that sits just 8.5 per cent below its all-time high set last December. Equities don’t seem to be signalling that the economy is about to hit rocky times.
There’s also an argument that Powell’s cross currents could well blow themselves out in the coming months.
The government shutdown is over, trade talks between China and the US are just starting, a better Brexit deal is possible and, in the words of the chairman himself, US economic conditions are strong.
Given all this, it’s hard to escape the conclusion that the Fed’s sudden dovish stance has much more to do with financial markets than any concrete economic indicators.
Patience might be a virtue, but that depends on what’s making you wait.
James Thomson
j.thomson@afr.com
from Viral up Blog http://bit.ly/2UysyBz
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