U.S. jobs growth exceeds expectations and eases market fears

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Federal Reserve Chairman Jerome Powell signaled the central bank could pause interest-rate increases if the United States economy weakened and pledged he will stay at his post even if President Donald Trump presses him to resign.

From rising wages to a slowdown in housing, economic evidence is mounting that the U.S. Federal Reserve is at or near a neutral level of interest rates where it can take stock of where the economy stands before deciding on its next moves, Cleveland Federal Reserve president Loretta Mester said.

But she said the turbulence may also stem from a different view of the economy than that shared by many Fed officials who feel confident US growth will remain on track for the next year, with labour markets still strong.

Employment data showed the U.S. added 312,000 jobs in December, much above analyst expectations, strengthening the case of those who have argued that markets have overreacted to signs that USA growth may have peaked.

The U.S. central bank hiked interest rates four times last year, including in December when policy-makers' forecasts pointed to two more rises this year. "Powell's change in tone is appropriate and we expect a similar, more cautious tone to continue in light of increased uncertainties".

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Compared to comments he made after the Fed raised rates last month, "it's not that he's changed his message. but that he explained it more patiently and in greater detail", said Lou Brien, market strategist at DRW Trading in Chicago.

The December job report also indicated that unemployment rate was up 0.2 percentage point month-on-month to 3.9 percent, and that average hourly earnings for all employees on private nonfarm payrolls rose 11 cents, or 0.4 percent over November, to 27.48 USA dollars.

"The markets are pricing in downside risks. and they are obviously well ahead of the data, particularly if you look at this morning's labor market data", Powell said. He said the word patient.

Powell's appearance in Atlanta was his first since last month's rate increase and a public lashing from Trump, who according to sources asked aides about his power to fire the Fed chairman. That suggests the Fed won't tighten again in March, she said. A third Fed president, Thomas Barkin of Richmond, said he is hearing more concerns about economic risks and trade.

In December, Powell said that the Fed's balance sheet reduction was on "autopilot". Asked on Friday whether he would resign if Trump requested it, Powell said: "No", adding there were no meetings scheduled between the two men. American presidents of the past quarter-century have kept private their opinions about Fed policy so the Fed can focus on employment and inflation rather than feel pressure from the short-term wishes of politicians. The remarks were received as more dovish than some of Powell's recent comments, which have drawn the ire of President Trump. Only the headline has been changed.

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