Jerome Powell threw a bucket of cold water last week over markets that had been gripped by euphoria in the aftermath of Donald Trump’s resounding victory in the US election.

Financial markets had been pricing in an 80 per cent probability of a rate cut at the next meeting of the US Federal Reserve Board on December 17 and 18. After Powell, the Fed’s chair, gave a speech in Dallas late last week, the odds shrank to less than 60 per cent.

The Trump presidential victory euphoria has started to fade on Wall Street.Credit: AP

The sharemarket, which had gained almost 4 per cent in the week after the election, fell 1.3 per cent on Friday. An index of the biggest tech stocks tumbled by 2.7 per cent.

What did Powell say that shifted the mood in the markets?

“The recent performance of our economy has been remarkably good, by far the best of any major economy in the world,” he said.

“The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”

In other words, the Fed, having cut the federal funds rate by 75 basis points at its September and October meetings, may be done for this year. Next year, of course, comes the new Trump administration and the prospect of tax cuts, tariffs, mass deportations and a full-scale assault on the sprawling US federal bureaucracy.

Powell said it was too early for the Fed to take Trump’s policies into account in its decision-making.

“I think we have time to make assessments about what the net effects of policy changes will be on the economy before we react,” he said.

He also said the potential impacts of Trump’s proposed tariffs would be complicated by the reaction of US trading partners, as the negative effects on growth were being countered by the positive impact of an expansive fiscal impact.

The sharemarket, in its initial reaction to the Trump trifecta – control of the White House,........

© Brisbane Times