Early Friday, the Labor Department said that us employers added the most workers in 10 months as wage gains accelerated and labor-force participation jumped, suggesting the underlying economy is holding up amid falling stock prices.
"Despite this dovish tone, we are sceptical", Schenker said in a note.
"What does what is going on in the financial markets tell you about the fundamentals?"
The Fed, which hiked benchmark US interest rates four times a year ago including in December, is however not on a preset path and could pause policy tightening as it did in 2016 when global growth concerns led to doubts about the USA economic recovery, he said. The stock market has seen stomach-churning declines since October, a development that Trump has blamed on the Fed's continued rate hikes, although the president's trade dispute with China as well as concerns about global economic growth also played a part in the market volatility.
Stocks surged on Friday after the Labor Department reported US firms created 312,000 jobs in December, and Powell said the Fed would be flexible in deciding on any further rate increases.
Private economists viewed Powell's comments as a strong signal that the Fed, which in December had projected another two rate hikes in 2019, may end up deciding to pause hikes for several months. That could lead to renewed turbulence as the Fed and other central banks seek to normalise monetary policy at a time of cross currents in the global economy.
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 previous year". Asked if he had had any face-to-face meetings with Trump, Powell said he had not although he said previous Fed leaders have had discussions from time to time with previous presidents.
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"The Fed has got a communication problem" when it comes to the balance sheet, said Wrightson ICAP LLC chief economist Lou Crandall.
The two former central bank chairs also threw their support behind Powell and Fed independence following months of escalating criticism from Donald Trump.
"As always, there is no preset path for policy", Powell said, according to CNBC.
"We're listening carefully with - sensitivity to the message that the markets are sending and we'll be taking those downside risks into account as we make policy going forward", Powell said.
The pace of Fed rate hikes and the lowering of the balance sheet, which tends to put upward pressure on interest rates, had both been concerns of investors in recent months.
Analysts predicted that job reports for January and February will be more of a policy reference for the Fed than the December report as they would provide a clearer picture of how tightened financial conditions affect the US economy. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.
"Longer-term bonds have sold off here today in price", said Tim Ghriskey, chief investment officer at Inverness Counsel in NY.