USA jobs growth exceeds expectations and eases market fears

Spencer Underwood
January 7, 2019

The Dow Jones Industrial Average surged almost 750 points Friday, more than erasing its losses one day earlier, as a stock market hungry for good news received two morsels: a stronger-than-expected jobs report and comments from the Federal Reserve Chairman that signaled more flexibility in raising interest rates.

A new jobs report on Friday showed United States employers added more than 300,000 jobs in December - well above expectations.

Powell triggered an additional surge in the markets after he walked back the comment made in December that shook up investors and made him sound like his sole mission was to reduce the central bank's balance sheet.

Powell's comments alleviated some worries that the Fed's course of monetary tightening may be too aggressive in the event of an economic slowdown. The week was a volatile one for stocks.

"A solid set of job numbers and some comfortable words from the chairman of the Federal Reserve have been just the ticket to get markets into bullish mode", said Chris Beauchamp, chief market analyst at online trading platform IG.

Both of those messages cheered stock market investors who had been anxious 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.

In the cash market, the benchmark S&P 500 Index settled at 2531.94, up 84.05 or +3.17%.

At the same time, he reassured investors of the Fed's flexibility.


The head of the Fed, once confirmed by the Senate, can only be removed "for cause", not a policy disagreement. The Fed said in December it anticipated raising rates twice in 2019.

A third Fed president, Thomas Barkin of Richmond, said he is hearing more concerns about economic risks and trade.

Powell triggered an acceleration in the selling pressure when he said, "As always, there is no preset path for policy".

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.

"However, this idea that has been percolating in the market that round the corner, the United States maybe looking at recession risk, that makes no sense because monetary policy all around the world are still more accommodative and the U.S. economy is growing faster than it long run trend and the Fed policy is still accommodative, the real Fed funds rate is barely above zero", Glassman said in an interview with CNBC-TV18.

Analysts predicted that job reports for January and February will be more of a policy reference for the Fed than the December report as they would provide a clearer picture of how tightened financial conditions affect the USA economy.

"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.

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