Powell trying to break market’s ‘co-dependence’ on the Fed

Federal Reserve Chairman Jerome Powell‘s tone after this week’s monetary policy meeting signals he’s trying to break the market’s “co-dependence” on the central bank, economist Mohamed El-Erian told CNBC on Friday.

El-Erian, chief economic advisor at Allianz, speculated that Powell, in reaction to stocks sinking Wednesday and Thursday following his news conference, would probably say something like: “It’s about time the markets stand on their own feet.”

The stock market initially rose Wednesday after the Fed raised its benchmark interest rate a quarter-point, as expected, and lowered its rate hike projections for 2019 from three to two. But Wall Street plunged shortly after Powell’s comments during his news conference suggested that the central bank would not slow its pace of hikes as quickly as some had hoped.

Powell, under criticism from many investors and President Donald Trump on the Fed’s rate path, is ending “this notion that the Federal Reserve is our best friend forever,” El-Erian said in a “Squawk Box.” interview.

The market rout continued into Thursday, with the Dow Jones Industrial Average closing down 470 points. The Dow and S&P 500 fell further into correction territory. The Nasdaq briefly dipped into a bear market. The Dow, S&P 500, and Nasdaq were on track for their worst week in nine months, and their worst yearly performance since the financial crisis year of 2008. However, U.S stock futures were pointing to higher Friday open.

(A correction is defined as a decline in an asset or index of 10 percent or more from recent highs. Meanwhile, a bear market is measured by a drop of 20 percent or more from recent highs.)

Powell could have eased some market fears by saying “nothing is off the table” concerning rate hikes and shrinking the balance sheet, El-Erian said, but warned “bad market technicals” could become “bad economic technicals” if Washington isn’t careful.

El-Erian, formerly CEO of investment giant Pimco, had previously said the Fed rate decision would be “a real test as to whether the power of the Fed is indeed a different Fed or whether at the first sign of market volatility they flinch.” El-Erian has also said Powell would likely attempt to ignore President Trump, who has blamed the recent stock market declines on the Fed chief.

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