Fed announcement triggers best trading session in over eight months

With one announcement, the Chair of the Federal Reserve triggered the best trading day in 8 months. In the background, President Trump is leaning on his bully pulpit to do what he can to influence the Fed.

At the end of Wednesday trading session, Nasdaq was up 2.9 per cent, Dow Jones 2.5 per cent and the S&P 500 having seen a 2.3 per cent increase. All in all, Wednesday was the best trading session that the US premier stock exchanges have seen since March 26, 2018, when the Dow Jones index rose by 2.7 per cent.

The surge in trade is largely attributed to the midday speech given by Fed Chairman Jerome Powell, in which he declared that the US economy remains solid and that the interest rates are at, and is likely to remain “just below” the so-called neutral rate.

“My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent,” said the chairman.

The speech was widely interpreted as indicating that the Fed is considering pausing its expected larger interest rate increases, leading investors towards again investing in stocks. However, the central bank is still expected to introduce yet another incremental increase of interest rates for the fourth time this year in mid-December. Market observers were nervous about large rate increases, because last month he described rates as being “a long way” from the neutral rate.

Tech shares in particular saw renewed interest, this after months of taking a beating. Of the so called FAANG-companies (Facebook, Apple, Amazon, Netflix and Google), Facebook saw the lowest increase at 1.3 per cent. Apple and Google’s parent company Alphabet saw increases of 3.8 and 4 per cent respectively. Netflix and Amazon saw the greatest increases, at 6 per cent and 6.1 per cent.

Amongst the biggest non-FAANG-stock winners is the customer service company Salesforce.com, which rose by 10.2 per cent after it exceeded expectations for the third quarter.

More traditional companies also saw increased interest, with Boeing and Caterpillar stocks both surged by just below 5 per cent.

Richard M. Nixon in 1968 with economic advisers Milton Friedman, left, and Arthur F. Burns, right, who later became the Federal Reserve chairman. By making him fear for his job, President Nixon, pressured Burns to keep the rates low and print more money. The people suffered the consequences of this when it contributed to high inflation in the 1970s. (AP Photo)

Under Pressure

Of late, Powell has been in the political headlines more than typical of a Federal Reserve Chairperson, because of the more than typically truculent commander in chief.

“So far, I’m not even a little bit happy with my selection of Jay [Jerome Powell],” the president told the Washington Post. “Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.”

President Trump’s criticism of the Fed Chair was over the expected rate increases, which were causing some shoddy market growth during the fall, and, importantly for the President, during the midterm election season.

“They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me,” President Trump summed up.

Although Powell’s speech on Wednesday may allay the divide between the President and the Fed Chair, the preceding days were marked by speculation over whether the President would attempt to remove the Chair, or utilize the power of his office to pressure the Chair into politically convenient interest rates.

“The President can nominate a chair but once the chair is confirmed, the president is out of it and the only way you can remove a chair from office is literally if they broke the law. Congress will have to find a cause to remove them from office through a vote and a procedure,” said Ellen Zentner, Morgan Stanley’s chief U.S. economist.

Zentner’s statement was one of a chorus of high profile voices saying that the president can’t remove Powell over a simple policy disagreement.

[Title Image: Jerome Powell, right – Donald Trump. (Image: Reuters)]

John Sjoholm, Lima Charlie News

John Sjoholm is Lima Charlie’s Middle East Bureau Chief, Managing Editor, and founder of the consulting firm Erudite Group. A seasoned expert on Middle East and North Africa matters, he has a background in security contracting and has served as a geopolitical advisor to regional leaders. He was educated in religion and languages in Sana’a, Yemen, and Cairo, Egypt, and has lived in the region since 2005, contributing to numerous Western-supported stabilisation projects. He currently resides in Jordan. Follow John on Twitter @JohnSjoholmLC

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