Federal Reserve Chairman Jerome Powell said Friday that he will not resign if asked to do so by President Donald Trump, and that he is prepared to be patient in deciding when to raise interest rates again.
Both of those messages cheered stock market investors who had been worried about Trump's repeated attacks on his hand-picked choice to lead the nation's central bank and also the Fed's seemingly inexorable march to higher rates.
"There is no pre-set path for policy," Powell said during an appearance at a conference of economists in Atlanta. "With the muted inflation readings we have seen coming in, we will be patient as we watch to see how the economy evolves."
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Private economists viewed Powell's comments as a strong signal that the Fed, which in December had projected another two rate hikes in 2019, may end up deciding to pause hikes for several months.
"With Chairman Powell's remarks today, I would say they will do just one hike or maybe no hikes this year," said Sung Won Sohn, chief economist at SS Economics. "Powell is definitely trying to calm the markets."
Wall Street, which opened sharply higher after a report showing 312,000 jobs gained in December, surged even higher during Powell's appearance. The Dow Jones industrial average finished the day up 746 points or 3.3 percent.
Powell called the jobs report "very strong" and said he was also encouraged by the rise in the labor force participation rate and gains in wages, which he said "for me at this time does not raise concerns about too high inflation."
Trump has complained that the Fed has pushed rates higher despite the fact that there is no evidence that inflation was getting out of control.
The president's attacks had become so intense that they had raised concerns that he might be considering firing Powell, a development which could send the market into a tailspin.
Trump would appear to be on shaky legal ground if he tried to fire Powell. Under the law that governs the Federal Reserve, a president can only remove a Fed chairman for cause. Courts in cases that involved other agencies have interpreted that language to not cover policy differences.
Asked if he would resign if Trump asked him to do so, Powell responded with a short "no."
Powell's willingness to be flexible on interest rates was welcome news to investors, many of whom worried that Fed chair risked cutting off the current economic expansion by continuing to raise interest rates despite signs the U.S. economy was cooling off a little.
On Friday, Powell said, "We are always prepared to shift the stance of policy and to shift it significantly if necessary" to meet the goals of maximum employment and stable prices.
Powell gave as an example the fact that in 2016, when Janet Yellen was Fed chair, the central bank began the year with a projection that it would raise rates four times that year but ended up raising rates only once because the economy hit a soft-patch.
Appearing on a panel with his two predecessors — Yellen and Ben Bernanke — Powell also said that the Fed could alter its approach to trimming its huge balance sheet if it determines such a change is needed.
The pace of Fed rate hikes and the lowering of the balance sheet, which tends to put upward pressure on interest rates, had both been concerns of investors in recent months. The stock market has seen stomach-churning declines since October, a development that Trump has blamed on the Fed's continued rate hikes, although the president's trade dispute with China as well as concerns about global economic growth also played a part in the market volatility.
The Fed had increased the size of its balance sheet four-fold to a record $4.5 trillion in an effort to push long-term interest rates lower. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion. But some investors have worried that that process could push long-term rates higher at a time when the economy was slowing.
Powell on Friday stressed that the Fed was prepared to adjust the pace at which it trimmed the balance sheet if necessary to support economic growth.
While Trump has sent out a number of tweets criticizing Powell and calling the Fed the biggest threat to the economy, Powell said that he had not received any direct pressure from the White House. Asked if he had had any face-to-face meetings with Trump, Powell said he had not although he said previous Fed leaders have had discussions from time to time with previous presidents.
Asked if any future meeting with Trump was scheduled, Powell said, "I have no news on that. Nothing is scheduled."