US Stocks Rally Following Powell Speech

Powell Signaled a Downshift in Rate Hikes

Jerome Powell of the Federal Reserve indicated that the Fed will raise interest rates by a half percentage point at its next meeting. This means an end to an unprecedented four-year run of 0.75-point increases aimed at preventing high inflation. Chairman Powell said the Fed needed to be confident that inflation would fall below its 2% target if an overheated labor market needed to cool further. Officials should delay the pace of rate increases, he said at a conference at the Brookings Institution. As the Fed has increased interest rates swiftly, those adjustments will take quite some time to affect the economy.

On November 2, the Fed reduced its benchmark rate by 0.75 percentage points. This led to a range of 3.75% to 4%, up from near zero in early March. At their Dec. 13-14 meeting, several officials have signaled that they plan to approve a 0.5-point rise.

Mr. Powell highlighted a reduction in interest-rate sensitive sectors of the economy, such as housing and improving supply chain conditions, as evidence of progress on the inflation fight. He said that if firms don’t slow their hiring to bring the strong demand for labor into better balance with a shortfall in the supply of workers, declines in rents and goods prices may be insufficient.

In recent months, labor demand has softened. According to the Labor Department, overall job openings were 10.3 million in October, up from 9.9 million a year ago. That decreased from 10.7 million in September, but it far outnumbered the 6.1 million unemployed people looking for work in October. 

Traders Cheering

With Powell signaling the lower pace, stocks rose across the board. The dollar and bond yields fell in tandem. The S&P 500 recorded its longest monthly winning run since August 2021, rising to a two-month high. The gauge also breached the 200-day moving average, which some analysts interpret as a precursor to more gains. The Dow Jones Industrial Average rose 20% from its September low, reaching the bull-market definition, while the Nasdaq 100 rose about 4.5%.