Major Wall Street indices rose on Friday, breaking a three-week losing streak. Fed Chair Jerome Powell’s warning that further rate hikes may be needed to combat persistent inflation was ignored.
“We stand ready to raise interest rates further if necessary and intend to keep policies at accommodative levels until we are confident that inflation is moving towards our target on a sustained basis,” he said at the Jackson Hole Economic Symposium in Wyoming.
After an early sell-off, the Dow Jones Industrial Average turned green again to finish up 247 points, or 0.73 percent. The S&P 500 rose 0.7 percent and the Nasdaq Composite rose 0.9 percent.
Analysts and policymakers were divided ahead of Powell’s speech on the likelihood of a twelfth rate hike to fight inflation at the Fed’s next rate meeting in September, and his speech did little to clarify the issue.
Gus Faucher, chief economist at PNC Financial, said in a note that the speech was consistent with his baseline forecast of no further rate hikes this year, adding: “PNC expects a mild recession beginning in early 2024 as a cumulative impact of a tighter monetary policy.’ leads to decline in interest-rate-sensitive sectors.’
Federal Reserve Chairman Jerome Powell pauses outside the Jackson Lake Lodge during the Jackson Hole Economic Symposium in Grand Teton National Park on Friday
Traders work on the floor of the New York Stock Exchange on Friday as Federal Reserve Chair Jerome Powell’s speech is seen on a television screen
“The general tone of Chairman Powell’s Jackson Hole speech is one of cautious optimism coupled with a clear determination not to take any chances on the inflation outlook,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients.
“If the Fed thinks this warrants further tightening, then so be it.” But nothing is guaranteed,” he added.
“Compared to market expectations, Powell perhaps provided a little more on possible further rate cuts and a little less on the idea that average policy rates will be higher,” economists at Citigroup wrote in a note to investors after the speech.
Although Powell insisted that the Fed could still raise interest rates, he urged caution in his speech.
“As is so often the case, we use the stars to orient ourselves when the sky is cloudy,” he said.
“Given our progress to date, we are in a position to proceed diligently in the upcoming meetings, assessing the data that is coming in and the evolving prospects and risks.”
One word from Powell caught the eye of Brian Jacobsen, chief economist at Annex Wealth Management, particularly as it refers to Powell’s speech at the same Fed event last year.
That 2022 speech led to a sharp drop in stock prices and a sell-off that lasted to mid-October lows.
“Cautious is the new with emphasis,” said Jacobsen. “Last year, Powell said the Fed would respond vigorously, and they did.” Now they can tread carefully. “Any adjustment to tariffs will now be more like fine-tuning.”
After an early sell-off, the Dow Jones Industrial Average turned green again to finish up 247 points, or 0.73 percent
Inflation in the US has risen to an annual rate of 3.2 percent – a slight increase in July from the 3 percent annual increase in June – but well below last summer’s peak
The Federal Reserve hiked interest rates by a quarter of a point last month, taking benchmark borrowing costs to their highest levels in more than two decades
Following Powell’s comments, US stocks endured a bumpy spell before surging sharply in the afternoon.
“The market’s initial reaction after the speech was to go lower, but keep in mind that Nvidia’s stunning gains were not enough to trigger a market rally. So it’s not surprising that Powell’s ambiguous stance isn’t reviving the bulls either,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.
In order to curb high inflation, the Fed has already raised its key interest rate to its highest level since 2001. That was an increase from almost zero early last year.
The threat of interest rates staying higher helped equities plunge in August after a disastrous year. The S&P 500 is down 4 percent after rising 19.5 percent through July.
Concerns that interest rates could stay elevated this week also overshadowed a stunning earnings report from Nvidia, which has become one of Wall Street’s most influential stocks.
The chipmaker once again issued a stronger-than-expected guidance for upcoming sales, raising hopes that this year’s frenzy around artificial intelligence technology may be justified.
AI mania was one of the main reasons the S&P 500 rose as much as it did earlier in the year.
Marvell Technology, another company leading growth driven by AI, fell 6.6 percent on Friday following its earnings report. The results were slightly higher than what analysts had expected. The stock was already up almost 55% by the start of the day.
On the gains side of Wall Street, Gap rose 7.2 percent after the retailer reported better-than-analysts-expected earnings for the most recent quarter, despite its sales falling just short of forecasts.