Wall Street has many things to digest when determining where the US economy is headed, especially after Apple's alert to investors for your business in China. Investors are nervous and doubts are stirred about the global slowdown. Jerome Powell, president of the US Federal Reserve, has tried this Friday to calm the spirits by ensuring that he will be "patient" when assessing the risks in the face of the markets' concern about a global slowdown. At the same time, he was optimistic to say that the expansion will remain above the potential in 2019 despite anticipating a moderation. Yanet Yellen and Ben Bernanke, his predecessors, share the analysis.
The markets have been worried for three months about the course of monetary policy in the US, the economic slowdown in China, the impact of trade tensions and the political chaos that dominates Washington. Powell believes, however, that investor sentiment is moving ahead of the data and those contradictory signals complicate their work. "We will be patient when evaluating how the economy performs," he insisted when referring to the course of the strategy. In this regard, he said he will be sensitive and open to making changes if necessary. "We are always prepared to change the course of our monetary policy in a meaningful way if necessary," he added, noting that the economic data remains solid. Powell insisted that the Fed was ready "to adjust its (monetary) policy quickly and flexibly."
Bounce on Wall Street
Powell spoke at a round table with Yellen and Bernanke organized in Atlanta by the American Economics Association. His comments were greeted with relief by Wall Street, which rebounded more than 2.5% after the sharp drop of almost 3% on the eve. In the parquet it is assumed that the next increase in interest rates will not be imminent. The last increase was decided in December, to place them in a band between 2.25% and 2.5%.
President Donald Trump did not hesitate a second to proclaim that the comeback in the stock market was worth the plans he had to bring growth above 3%. But now that the markets are going in the opposite direction, share the blame with others. The first objective of his attack was to criticize the Federal Reserve for raising rates. He went on to say that it was the biggest problem the economy had.
But this week he began to admit that there are other factors that create anxiety among investors. "Our country is far better than others in the world," he said during his cabinet meeting last Wednesday, "everyone talks about us." To then say that despite the stumble of December, the markets are 30% above when he was elected president.
From there predicted that Wall Street will rise again when "business issues are resolved." The Republican had so far denied that the tariff war between the US and China was a risk factor for economic growth. The two powers gave a truce of three months on December 1 to negotiate a pact that allows to park the dispute.
Fear of Chinese slowdown
Apple's alert to investors perfectly reflects the fears that dominate the market. Tim Cook, its CEO, specifically cited the slowdown in growth in China as the main factor that led him to lower the revenue forecast for the quarter of Christmas shopping. And he warned that commercial litigation did nothing but add more pressure to the situation.
Despite the tension that dominates Wall Street, the employment data for December reflects that the economy is moving forward with strength. The members of the Federal Reserve who spoke this week assure that they listen to the market "with care" and that is why they try to incorporate these risks in their strategy. They also point out that nobody expects a 3% growth like last year in the United States.
That moderation, they insist, does not mean that a recession is going on. Larry Kudlow, Donald Trump's chief economic adviser, made the same claim when assessing employment data and believes that market fears are exaggerated. It also ensures that companies are "investing in a big way". He believes that Apple's problem with China is that its technology has peaked and has more competitors.
Kevin Hassett, chief economist of the White House, does not rule out however that other large multinationals follow the path of Apple and reflect in the results the effect of the slowdown of the economy in China. "It will be bad for the profits of American firms," he admitted. That, in his opinion, puts at the same time "a lot of pressure on China to reach a trade pact" with the United States.
Jerome Powell hinted that there is no urgency to raise interest rates faster because inflation gives room for maneuver and because the current rate is already very close to a neutral position. And although the data is still generally sound, it admits that there are many currents at play, some of which fuel uncertainty. That is why he reiterated that the challenge is to achieve a balance.
Powell, like Cook, is hopeful that an agreement will be reached on the commercial front to clear the uncertainty. And he made it clear that the Fed's culture is robust and will not be driven by political pressures. He also said he does not intend to resign if Trump asks him to. Yellen said she expects the criticisms against the central bank to cease so that the work of the institution will not be called into question.