Fed’s Powell says economy on firmer footing, QT end in view

NEW YORK (Reuters) -The U.S. labor market remained mired in its low-hiring, low-firing doldrums through September, though the economy overall “may be on a somewhat firmer trajectory than expected,” Federal Reserve Chair Jerome Powell said on Tuesday.

He noted that at policymakers will take a “meeting-by-meeting” approach to any further interest rate cuts as they balance job market weakness with the fact that inflation remains well above their 2% target.

Powell also said the end of the central bank’s long-running effort to shrink the size of its holdings, widely known as quantitative tightening, or QT, may be coming into view.

His comments came from the text of a speech prepared for delivery before a gathering held by National Association for Business Economics in Philadelphia.

MARKET REACTION:

STOCKS: U.S. stocks were mixed, with the Dow and S&P 500 up on the day, while the Nasdaq was down.

BONDS: U.S. Treasury yields extended their fall, with the yield on the benchmark 10-year note slipping to 4.03% and the two-year note down at 4.1%.

FOREX: The dollar index extended losses, now down 0.3% at 99.03.

COMMENTS:

STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CONNECTICUT:

“The reason for the sell-off overnight was concerns about the trade war re-accelerating between the US and China. But the markets decided that this isn’t really a problem, at least in the short term.”

“The market was going up anyway. We were down 10 points before he started speaking so this is just the cherry on top of the cake on today’s rally … but the bulk of the move was unrelated to his comments.”

ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK: “The fact is the (stock) market was extended. It pulled back to support technically, which is the 50-day moving average… and bounced off of it.”

“The Fed said nothing has changed. Even if (trade) tensions escalate… the Fed is still going to cut rates with the stock market at all-time highs. So, fundamentally, we have a tremendous tailwind coming into effect in the near future.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

“I don’t think (Powell) is changing his tune whatsoever. He’s saying that the economy is on solid footing, but he’s also saying we have weakness. What he’s doing is he’s preparing the markets for a series of rate cuts, but not necessarily in a sequential order.”

“He’s saying is he’ll cut (interest rates) by 25 basis points at the end of this month then they’ll assess the situation. And if the labor market continues to weaken and actually loses jobs, then he might be setting us up for a jumbo cut of 50 basis points in December.”