Stocks Soar, Treasurys Plunge as Fears Subside Over Economic Growth, Fed Policy

Jerome Powell says Federal Reserve ready to adjust policy if needed can be patient

The question is how long that pacification strategy will work.

Trump has complained that the Fed has pushed rates higher despite the fact that there is no evidence that inflation was getting out of control.

"By delivering what traders wished to hear regarding policy flexibility, Chairman Powell managed to interrupt a self-feeding market selloff that risked contaminating economic fundamentals, " Mohamed El-Erian, chief economic adviser at Allianz SE and a Bloomberg Opinion columnist, said in an email.

In a session emblematic of the elevated volatility that has gripped markets for weeks, all three major USA stock indexes surged more than 3 percent in one of the broadest advances in years.

Powell agreed with Yellen, assuring the listeners that the Fed would not be swayed by political commentary in its decision-making process.

Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening.

"Central banks will continue to face headwinds largely outside their control and a new reality, that of transitioning from volatility repressors to contributors".

Powell "said exactly what the markets wanted to hear", said Gregori Volokhine of Meeschaert Financial Services.

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In response to the observation that the Treasury issues more securities when the Fed's balance sheet holdings mature, Powell said, "We don't believe our issuance is an important part of the story in the market turbulence that began in the fourth quarter of a year ago".

"That's quite welcome", Powell said.

Dallas Fed President Robert Kaplan said on Thursday that planned rate hikes should be halted for now, while on Friday Mester said she sees only one or two rate hikes this year.

When asked whether he would comply with a resignation request by Trump, Powell said, "No". Asked on Friday whether he would resign if Trump requested it, Powell said: "No", adding there were no meetings scheduled between the two men.

China's Commerce Ministry said trade talks will be held Monday and Tuesday in Beijing, and investors will again look for signs the world's largest economic powers are resolving their dispute. China took action to stimulate its slowing economy.

Former treasury secretary Henry Paulson said that China "is under a microscope". "The Fed understands that what they attempted to communicate last month was inartful, that they didn't get the right message across, and Powell tried to reset".

Oil rose almost 2 percent on Friday after proposed trade talks between the United States and China eased some fears about a global economic slowdown, but gains were capped after the United States reported a sharp build in refined product inventories. On Friday, his softer tone eased investor concerns about further tightening, noting that the Fed will be flexible with all of its monetary policy tools, including the important balance sheet.

He argued that the amounts involved are not big - the Fed is reducing its bond holdings by a maximum of $50 billion per month - and that the central bank's actions on that front were not a major reason for the financial turbulence last quarter.

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