Following a heavy wave of risk-off trading at the end of last year, risk sentiment was boosted on Friday as US Federal Reserve chairman Jerome Powell gave a statement which appeared to highlight that the Fed will remain on hold for the time being.
In a statement read out at the American Economic Association, Powell told investors regarding further rate hikes:
“We will be patient as we watch to see how the economy evolves.”
Specifically, Powell stated:
“We’re listening carefully with – sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward.”
Fed To Be “Patient”
The market warmly welcomed the return of the word “patient” which was used by former Fed Chairwoman Janet Yellen in every statement up to the first post-GFC rate hike.
The statement, which came on the back of a solid December jobs report, saw the Fed Chairman striking a cautious tone as he highlighted downside risks to the US economy. These comments come just weeks after the Fed downgraded its 2019 dot plot forecast, now projecting just two hikes from the earlier forecast three.
Fed To Be Flexible
Commenting on the declines Powell was keen to highlight the reactive role the Fed would be playing going forward, saying that the Fed would “adjust policy quickly and flexibly” if the economy experiences any difficulties.
“We wouldn’t hesitate to change it and that would include the balance sheet. We’re hearing a lot from different groups of people about the role the balance sheet normalization may be playing in the market… If we came to the view that the balance sheet normalization or any other aspect of the normalization was part of the problem, we wouldn’t hesitate to make a change.”
The recovery in the S&P has seen price trading back up to retest the 2551.87 resistance level, which was the April 2018 low. Above here and the next key level to watch is the 2604.37 level, which was the October 2018 swing low. Until we get above this, the focus remains on the further downside with the 2018 low of 2312.58 as the main level to watch.