Stocks rallied further after Fed Chair Jerome Powell told a gathering of economists that the United States central bank had no "pre-set" plan for interest rates and was carefully monitoring economic conditions.
Against that backdrop, Powell said most of the hard data we see coming in remains quite solid.
He has blamed the Fed for stock market declines and said he is "not even a little bit happy" with Mr Powell, whom he named to lead the Fed in 2017. Powell said he did not think the latter was having much impact on markets, but that the strategy would be changed if it started interfering with the bank's broader goals of maintaining strong employment and stable inflation. The Dow Jones industrial average was up around 700 points near the close. The moves follow a better-than-expected job report that showed that 312,000 jobs were created in December, with the unemployment rate rising to 3.9%, as more workers entered the workforce.
Overall, she said she felt the Fed was in a "really good spot".
Trump would appear to be on shaky legal ground if he tried to fire Powell.
The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement. Courts in cases that involved other agencies have interpreted that language to not cover policy differences. Powell responded with a terse "No" when asked if he would resign if Trump requested him to do so.
The Fed chief said the markets are "well ahead of the data" in the U.S. and are pricing in downside risks, particularly internationally. "We're always prepared to shift the stance of policy and to shift it significantly if necessary". The Fed has raised interest rates nine times since the end of 2015.
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Wall Street stocks surged higher on Friday (Jan 4) to finish a volatile week on an upbeat note following dovish Federal Reserve comments and a strong USA jobs report.
The Fed's tightening cycle includes both rate hikes and the gradual shedding of its more than $4 trillion in assets.
Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening.
Balance Sheet It was on the Fed's balance sheet - and its impact on the markets - that Powell seemed to be most at odds with investors, many of whom worry that the central bank's ongoing reduction in its bond holdings is draining too much liquidity from the financial system.
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.
"The markets are pricing in downside risks. and they are obviously well ahead of the data, particularly if you look at this morning's labor market data", Powell said.