(Reuters) - Federal Reserve Chairman Jerome Powell on Friday moved to mollify financial markets concerned about a U.S. economic slowdown, saying that while momentum is solid, the U.S. central bank will be sensitive to the downside risks the market is pricing in.

U.S. Federal Reserve Chairman Jerome Powell speaks at the American Economic Association/Allied Social Science Association (ASSA) 2019 meeting in Atlanta, Georgia, U.S., January 4, 2019. REUTERS/Christopher Aluka Berry

Powell also said he would not quit if asked to resign by President Donald Trump, who has repeatedly chastised the Fed for its interest rate hikes.

MARKET REACTION:

STOCKS: Major indexes are at the day’s high, up between 3.0 percent and 3.8 percent

BONDS: 2- US2YT=RR and 10-year US10YT=RR Treasury yields jump to session highs, fully retracting the previous session's big declines

FOREX: The dollar index .DXY gives back all of its gains from the payrolls report, with the greenback weaker against both euro EUR= and yen JPY=

RATE FUTURES: Fed funds contract for January 2020 FFF0 drop further, retracing about two-thirds of the previous day's gains

COMMENTS:

THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES & CO, NEW YORK:

“I think that there were two things that Powell really needed to do with the speech today. It was important to address threats to the Fed’s independence coming from the administration. I think he did that very effectively ... He said they’re going to do what they believe is appropriate regardless of input from anyone else.”

“To that end I think it was very important that he clarified a point they attempted to send in the Dec 19 policy statement. Which is that if you look at the summary of economic projections, the dots suggest a lower trajectory of rate hikes for 2019.”

“But the market and a lot of commenters in the media were focused on the fact that they had raised rates though there had been weaker inflation and weaker stocks going into that meeting. I think that lead to inappropriate expectations that the Fed would blindly continue to raise rates in the face of weakening economic conditions. He was effective in saying today that would not be the case.”

:And most importantly, acknowledging the fact that inflation has fallen a little short of the dual mandate expectations is almost a back door signal that they’re going to be slowing rate hikes in the near future.”

TOM DI GALOMA, MANAGING DIRECTOR, SEAPORT GLOBAL HOLDINGS, NEW YORK:

“Powell’s statement that the Fed is always prepared to shift stance of policy is truly defining moment for equity market bounce. There is great relief that Powell has pulled back on his hawkish rhetoric and is a bit more conciliatory. He is a more flexible in his views and this in turn has taken pressure off the equity markets generally.”

BOB SMITH, PRESIDENT, SAGE ADVISORY SERVICES LTD CO, AUSTIN:

“It doesn’t change anything to sit there and say ‘I’m flexible’ and ‘we’re going to be flexible.’ What the world is trying to figure out is what does that mean if you’re going to talk about it in terms of rates that’s one thing. If you’re going to talk about it in terms of leverage and unwinding the balance sheet that’s another thing and the important thing.”

“We’ve been in the position of fading the rallies. … We’re still very suspect. We’re cautious.”

LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO:

“It’s not that he’s changed his message from the FOMC, but that he explained it more patiently and in greater detail.”

“In the FOMC statement and in the post meeting press conference he thought it was sufficient just to say that a couple of changes in the statement was enough to indicate uncertainty on the future path of the funds rate and really it was not taken that way.”

“It was really I think a miscommunication. And I think it was a series of miscommunications that he’d had since early October. And so I thought it was interesting that he came out with, not a prepared statement, but what appeared to be several cheat sheets to ensure that he hit the points that he wanted to and didn’t miss any in a way that he had prepared, so that the message he was sending would be more clearly heard.”

“This is better than having an uncertain economy and a Fed that was interpreted as leaning hawkish. But I don’t know if it sufficient just because he was able to put pen to paper and say stuff that he meant to say in December.”

RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES FOR CHARLES SCHWAB IN AUSTIN, TEXAS:

“His (Powell’s) comments are being interpreted as dovish. The things he said today, are leading traders, investors to believe that the Fed is willing to potentially change their projections for rate hikes this year.”

“What we have seen in the past is that the markets seem to be dictating the Fed’s next moves and that is how the markets are looking at it right now.”

“At the moment, the (stock) markets are interpreting the speech in a way that it reduces the likelihood of future interest rate hikes.”

“What did change was the probability of a rate cut happening this year which was also something the markets had been pricing in, which dropped to 30 percent from 50 percent. This shows that the markets want to move towards a neutral rate.”

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET WEALTH ADVISORS, CHICAGO:

“That’s just reiterating the law he lay down in December. The inference is that he’s not going to come to the rescue of the market either because he doesn’t want to or because the Fed doesn’t have the wherewithal.”

“News of trade talk with China was welcome and a powerful jobs report provided a double shot of espresso to the market to wake up investors today. Investor sentiment has been in the cellar … so anything that’s slightly positive would be viewed as good news.”