Wall Street reacts to Fed Chair Jerome Powell’s interest rate warning: Dow jumps 250 points but one analyst forecasts a ‘mild recession’ next year

Wall Street’s major indices rose on Friday, breaking a three-week losing streak and overturning Fed Chairman Jerome Powell’s warning that further rate hikes may be needed to combat ongoing inflation.

“We are ready to raise interest rates further if necessary and intend to keep policy at a restrictive level until we are confident that inflation is moving steadily downward towards our target,” he told the Jackson Hole. Economic Symposium in Wyoming.

After an early sell-off, the Dow Jones Industrial Average rose back into the green to close 247 points, or 0.73 percent, higher. The S&P 500 rose 0.7 percent and the Nasdaq index rose 0.9 percent.

Analysts and policymakers remained divided ahead of Powell’s speech about the likelihood of a twelfth hike to address inflation at the next Fed interest rate meeting in September, and his speech did little to clarify the question.

Gus Faucher, chief economist at PNC Financial, said in a note that the speech was consistent with his baseline forecast that there will be no further rate hikes this year. leads to contraction in interest-sensitive sectors.’

Traders work on the floor of the New York Stock Exchange Friday as Fed Chairman 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 risks with the inflation outlook,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a letter to clients. .

If the Fed says that requires further tightening, then so be it. But nothing is guaranteed,” he added.

“Compared to market expectations, Powell may have been a little more vocal about possible further rate cuts, and a little less about the idea that average policy rates will be higher,” Citigroup economists wrote in an investor note after the speech.

Despite insisting the Fed could still raise rates, Powell urged caution during his speech.

“As is often the case, we navigate by the stars under a cloudy sky,” he said.

“Given how far we’ve come, we can carefully review the incoming data and evolving prospects and risks in upcoming meetings.”

One word from Powell caught the eye of Brian Jacobsen, chief economist at Annex Wealth Management, especially as it relates to Powell’s speech at the same Fed event last year.

That 2022 speech sent shares plummeting, in a sell-off that continued to the mid-October low.

“Cautious is the new powerful,” Jacobsen said. “Last year, Powell said the Fed would react strongly, and they certainly did. Now they can proceed with caution. Any adjustments to the rates will now look more like fine-tuning.’

After an early sell-off, the Dow Jones Industrial Average surged back into the green to close 247 points higher, or 0.73 percent

Inflation in the US has risen to 3.2 percent year on year – up slightly in July from the annual increase of 3 percent in June – but well below last summer’s peak

The Federal Reserve raised interest rates by a quarter of a percentage point last month, pushing benchmark lending costs to the highest level in more than two decades

US stocks entered a bumpy period after Powell’s comments before rising sharply in the afternoon.

The market’s initial reaction after the speech was to go lower, but keep in mind that Nvidia’s huge gains weren’t enough to kick off a market rally, so it’s not surprising that the ambivalent attitude of Powell won’t get the bulls running again either,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

The Fed has already raised its key interest rate to its highest level since 2001 in its bid to curb high inflation. That was an increase from almost zero at the beginning of last year.

The threat of interest rates staying high for longer contributed to stocks plummeting in August after what had been a gangbuster year. The S&P 500 is down 4 percent, after rising 19.5 percent in July.

Concerns that interest rates would stay high longer also overshadowed this week’s massive earnings report from Nvidia, which has become one of Wall Street’s most influential stocks.

The chipmaker again issued a stronger-than-expected forecast for upcoming earnings, giving hope that the frenzy surrounding artificial intelligence technology could be justified this year.

The AI ​​mania was a big reason why the S&P 500 rose as much as it did earlier this year.

Marvell Technology, another company driving growth from AI, fell 6.6 percent on Friday following its earnings report. The results were slightly higher than analysts had expected. The stock was already up nearly 55% that day.

On the winning side of Wall Street, Gap rose 7.2 percent after the retailer reported stronger earnings than analysts had expected for its final quarter, though sales fell just short of expectations.