Jerome Powell had a message for both Wall Street and Washington: The Federal Reserve won't be pushed around.
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"Nothing will deter us from doing what we think is the right thing to do," Powell told reporters on Thursday.
Rather than cave to the whims of the market and the desires of President Donald Trump, Powell took a more balanced approach. The Fed raised rates for the fourth time this year on Thursday. It lowered its projections for GDP growth and the number of 2019 rate hikes, but it signaled "gradual" rate increases are still in the cards.
Powell acknowledged that "some crosscurrents have emerged" in the economy but said recent developments have not "fundamentally altered the outlook."
"He essentially told investors and traders that their bearish take is 100% wrong," Nicholas Colas, co-founder of DataTrek Research, wrote to clients.
Not surprisingly, that message was not received well on Wall Street, where fears of an economic slowdown have mounted. Wednesday's pre-Fed rally vanished and the S&P 500 closed with a 1.5% loss. It was the worst Fed Day performance since 2011, according to Bespoke Investment Group. And the Dow dropped another 350 points to fresh 14-month lows on Thursday.
Economic concerns have wiped out 5,500 points, or 13%, from the Dow since the October 3 record high. The Dow is on track for its worst December since 1931, according to LPL Financial.
In a series of recent tweets, Trump urged the Fed to "feel the market" and halt its rate hikes altogether.
"It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike," Trump tweeted on Tuesday before the Fed decision.
Protecting the Fed's reputation
Powell deserves credit for sticking to his guns despite the political pressure. The Fed has time to alter its course if the economy slows in 2019 as much as the market fears.
Powell pledged to do just that, saying the Fed will "adjust" policy "as best we can to keep the expansion on track." He also pledged to keep the labor market strong and inflation under control. And he signaled those changes have little to do with Trump's desires.
"Political considerations have played no role whatsoever in our discussions and decisions," Powell said.
The Fed had little choice but to raise rates on Wednesday. Failing to do so would have reinforced investor angst about an economic slowdown. And it risked puncturing the crucial perception that the Fed is an independent body that won't be swayed by politics.
"We're pretty sure that Jay Powell does not want to go down in history as the Fed Chair who was pushed around by an economically illiterate president," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote to clients earlier this week.
Politics aside, Powell is in a tough spot. It's difficult to wean the economy and investors off a decade of easy money. Powell's comments about continuing to shrink the Fed's $4 trillion balance sheet particularly spooked investors. Wall Street worries the Fed is walking into a mistake.
"The real policy error was keeping rates at zero for 7 years," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote to clients. "The Fed entered a no-win situation in reversing it no matter when it came and regardless of the pace."
FedEx, oil signal trouble
Still, global growth has slowed. The economic boom at home is starting to fade under the weight of tariffs and higher borrowing costs. Regional manufacturing reports have weakened.
Oil is in free fall as economic troubles have collided with worries of a supply glut. US crude prices tanked another 5% on Thursday.
Time will tell whether Powell's optimism is misplaced. But Powell showed only the Fed will decide when to change course, not investors and politicians.