Jerome Powell’s dovish stance

Jerome Powell’s dovish stance

In a gesture that is widely seen as a relief by financial and political corridors at large, US Federal Reserve Chairman Jerome Powell signaled the central bank could pause interest rate hikes if the US economy weakened. The US stock markets have been battling a chronic sickness in the last few weeks leading to a massive downturn in their fortunes. Just a couple of weeks ago it saw its biggest fall in a week in over a decade. The Powell led central bank has been under pressure to reduce or at least hold interest rates by US President Donald Trump who believes that the stock market would take a much-needed breather if done. Powell’s Fed hiked interest rates four times last year and projections show that two more rate hikes were imminent in 2019.

The latest statement gave hopes that rate hikes could be paused and set the tone for a more dovish stance by the Fed. The embattled stock markets cheered the move with the S&P 500 index rising 3.43% and the tech-heavy DOW Jones rising 3.29%. The US economy has been showing mixed signs with inflation and jobs data performing better than expected, but other macro data not being so good. The US-China trade war is beginning to take its toll on the US economy, it started out as a trade war but now some experts believe that it has snowballed into an all out cold war.

Fed chair Jerome Powell acknowledged that he was under pressure to keep rates on hold by President Donald Trump, but he also said that he would not give in to pressure by the President as he believes that rate hikes are within his power and not for the President to decide. There were even rumours of Powell being fired from his job when the President made inquiries whether he could do so a couple of weeks ago. The effect of this supposed dovish tone was bond yields softened in the US in addition to the stock market cheer. Asian Indices were also trading higher this Monday morning’s trade and even SENSEX and Nifty are far in the green.


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