Wall Street ended with gains after the statements of the president of the Fed on the evolution of inflation and employment in the US
Rising prices and interest rates have been at the center of wild market moves over the past year. The Fed is making progress in the fight against inflation, although it warned that it will be a long battle
The head of the Federal Reserve, Jerome Powell, on a screen at the New York Stock Exchange (REUTERS/Andrew Kelly)
Wall Street ended with gains on Tuesday after the Federal Reserve chief signaled that last week's surprisingly strong jobs report will not on its own change the direction of interest rates, as some investors feared.
The S&P 500 rose 1.3% shortly before the close after comments by Fed Chairman Jerome Powell sent stocks swinging between profit and loss on a couple of occasions. The Dow Jones Industrial Average gained 0.8 percent, while the Nasdaq composite rose 1.9 percent.
High inflation and how far the Fed will push interest rates to combat it have been at the center of Wall Street's wild moves over the past year. Powell said Tuesday that he is making progress in the fight against inflation, although there remains a long battle to be fought.
He echoed similar comments he made last week, after the Federal Reserve's latest rate hike. But that was before a stunning jobs report showed on Friday that American businesses added a third of a million more jobs than expected last month.
The headquarters of the federal reserve in Washington (REUTERS/Joshua Roberts)
This surprising show of strength raised concerns about upward pressure on inflation and fears that the Federal Reserve could end up maintaining the higher rates for longer, as you've been warning. Higher rates can lower inflation, but also hurt the economy and investment prices.
Powell said Tuesday at the Economic Club of Washington that big market moves since the jobs report have brought him closer to the Federal Reserve idea. Not only did stocks fall, but Wall Street raised its forecast for the Federal Reserve's summer rate hike.
Investors also lowered bets that the Fed could cut rates this year. Rate cuts can energize the economy and act as steroids for the markets.
“We have a long way to go to bring inflation down to 2%”, which is the Fed's goal, Powell said Tuesday. “The expectation has been created that it will go away quickly and painlessly. I don't think that's at all guaranteed.”
Powell also said that if there are more jobs reports or inflation data well above expectations, the Fed could ultimately raise the guys even more than what you've been saying.
After raising its overnight interest rate to a range of between4.50% and 4.75%, from practically zero a year ago, the Reserve The Fed has said it expects a couple more hikes before holding steady through the end of the year.
Treasury yields have spiked in recent days on expectations of a Federal Reserve firmer. On Tuesday they were relatively stable
Janet Yellen, head of the US Treasury (REUTERS/Evelyn Hockstein)
The 10-year Treasury yield, which helps set interest rates on mortgages and other major loans, rose to 3.66% from 3.64% on Monday. The two-year yield, which moves more in line with Federal Reserve expectations, dipped to 4.46% from 4.47%. Standing near its highest level in three months.
Despite recent market moves, share prices have risen a lot since the beginning of the year. The S&P 500 is up nearly 8 percent. Much of this is due to alleviation of fears that the economy could slide into a severe recession, a scenario described in markets as a “hard landing”.
“If I had If you take a field today, you'd be in for a soft landing, if only because of the strength of the labor market,” said Ross Mayfield, investment strategist at Baird. He said he sees a “slowdown or maybe a mild recession, but that's what I think a 'soft landing'” means now for the economy.
“The problem is that, with the markets rebounding at the beginning of the year, that scenario is already almost priced in,” he said. “There remain downside risks.”
Wall Street is also having a relatively lackluster earnings season.
Carrier Global fell 3.6% despite matching analyst expectations for its profit in the latest quarter. It also gave a revenue forecast for this coming year slightly above Wall Street expectations. Analysts pointed to a slowdown in orders.
On the winning side was DuPont, which rose 7% after posting higher-than-expected quarterly earnings . Activision Blizzard gained 5.3% after the video game company posted higher-than-expected revenue and profit in its latest quarter.
Microsoft's 4.1% rise also helped lift the market. Microsoft announced that it is using technology similar to ChatGPT in its Bing search engine.
In foreign stocks, Sydney's S&P-ASX 200 lost 0.5% after that the Reserve Bank of Australia raised its reference rate by 0.25 percentage points, to 3.35%. More increases are expected to reduce inflation, which stands at 7.8%, its highest level in 33 years, to its target of between 2% and 3%.
In Japan, the Nikkei 225 lost less than 0.1% after the government reported that wages rose 4.8% in December from a year earlier. This is a rise close to three-decade highs as workers push to be paid more to keep up with inflation.
(With information from AP)