US stocks surged after Jerome Powell’s Jackson Hole remarks set up a best-case scenario for traders.
The Fed Chair signaled the central bank was poised to issue a 25-basis-point rate cut in September.
All three benchmark indexes popped as traders digested the comments and priced in lower rates.
Fed Chair Jerome Powell gave markets exactly what they were waiting for.
In his long-awaited Jackson Hole speech, the Fed chief indicated that the Fed was leaning toward a 25-basis-point rate cut at its September policy meeting.
This sent equities soaring, with gains hovering around 2% for each of the three main US indexes. The Dow climbed 972 points at intraday highs.
“The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said in his prepared remarks. He added that the Fed was monitoring the unemployment rate and the strength of the US job market, a key area of the economy that has flashed recent signs of weakness.
Here’s where US indexes stood at 1:25 p.m. on Friday:
S&P 500: 6,476.96, up 1.7%
Dow Jones Industrial Average: 45,694.00, up 2% (904 points)
Nasdaq composite: 21,527.33, up 2%
Major indexes climbed ahead of Powell’s speech and jumped as the Fed Chair began speaking, with the Dow popping more than 700 points to a fresh record as investors digested his comments. The S&P 500 and Nasdaq were up more than 1%.
The 10-year US Treasury yield dropped seven basis points to around 4.26%.
“Powell’s dovish Jackson Hole comments suggest the Federal Reserve is ready to cut interest rates in September, which is just what investors were hoping to hear, given the recent slowdown in the labor market,” David Laut, the CIO of Abound Financial, wrote in a note.
He continued: “While there is still one more employment report before the September meeting, it’s clear the Fed has enough data under its belt to justify a September cut.”
Investors have been eagerly anticipating more rate cuts from the Fed all year. The odds of a 25 basis-point cut in September hovered around 73.5% in the minutes leading up to Powell’s remarks, but shot up to over 87% as traders digested his comments.
In his speech, Powell flagged recent signs of cooling in the labor market, adding that the slowing supply and demand for workers meant that the “downside risks to employment are rising.”
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation,” Powell said.
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