Fed Chair Powell: 'We Will Be Patient'

The S&P 500 surged more than 3 percent Friday, and much of the bullish sentiment stemmed from dovish comments made by Federal Reserve Chair Jerome Powell.

Powell and former Fed Chairs Janet Yellen and Ben Bernanke participated in a roundtable discussion at the America Economic Association’s annual meeting in Atlanta and Powell’s comments reassured investors the Fed is taking a cautious approach to further tightening in 2019.

Patient And Flexible

Powell said the Fed has no predetermined course of action this year after the FOMC projected two additional interest rate hikes in 2019 at its most recent meeting in December.

“Particularly with muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves,” Powell said Friday.

Powell said a perfect example of the Fed’s flexibility was in 2016. After initially projecting four rate hikes that year, the Fed instead raised rates only once after concerns about a slowing economy in China and other geopolitical risks spooked investors.

“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,” Powell said.

No Surprises

Bernanke said slowing economic growth “is not something that is news” considering the normalization process following years of stimulus.

Yellen said projected 2019 growth is “still likely to end up being above the growth rate of potential, which is consistent with a strong labor market and maybe even some further tightening.”

Trump’s Criticism

U.S. President Donald Trump, who replaced Yellen with Powell nearly a year ago, has been publicly critical of the Federal Reserve’s decision to continue to raise interest rates.

“They’re raising interest rates too fast because they think the economy is so good,” Trump said in December. Trump also told reporters “will see” when asked if he has confidence in Powell.

“The only problem our economy has is the Fed,” Trump later tweeted.

Bernanke said Trump’s criticism of the Fed is problematic.

“Yeah I think 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 which I'm completely confident that it will do,” Bernanke said.

Markets liked what they heard from the group on Friday. The SPDR S&P 500 ETF Trust SPY was up 3.3 percent and the SPDR Dow Jones Industrial Average ETF DIA was up 3.4 percent Friday.

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