Federal Reserve Chairman Jerome Powell said the central bank can be patient as it assesses risks to a U.S
economy and will adjust policy quickly if needed, but made clear he would not resign if President Donald Trump asked him to step aside.

“With the muted inflation readings that we’ve seen, we will be patient as we watch to see how the economy evolves,” Powell said Friday on a panel with his predecessors Janet Yellen and Ben Bernanke at the American Economic Association’s annual meeting in Atlanta.

“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,” he said, adding “there is no pre-set path for policy.”
 

Eoin Treacy's view

The financial markets have been busying pricing out the potential for additional rate hikes this year in the aftermath of the last Fed meeting. That was a clear message to policy makers that they were making a mistake in signaling a willingness to persist in raising rates and running off the balance sheet concurrently.

The above statement begins to suggests the Fed is alert to the message being sent by the markets. The stock market responded positively to this change of emphasis by Powell and rallied to countermand yesterday’s weakness; reinvigorating the reversionary rally hypothesis.  

The strength of the jobs’ report today, coupled with continued firmness in year over year earnings comparisons should remind us the Fed is data dependent. However, that data is often backward looking. The PMI figures reported earlier this week showed a significant slowdown and arguably lead hiring decisions. Afterall no business goes out to hire more workers unless they anticipate new orders coming in. when purchasing managers data is weak it suggests less than rosy prognostications about the future.   

The trajectory of monetary policy and the outlook for the Fed to provide a backstop to declines is more important to financial markets in the short term.