Jerome Powell effect on US stocks and beyond. The words that the number one of the Fed uttered yesterday, in a speech at the Brookings Institution, triggered a strong rally on Wall Street.
Powell said what the markets were hoping for, speaking of the possibility that the Fed will raise rates less than it has done so far, starting from the December meeting of the FOMC, scheduled for the next 13 and 14 December.
The S&P 500 index thus gained 122 points, +3.1% to 4,084, positioning itself above the moving average in 200 days for the first time since last April.
The Nasdaq flew by 4.4%, to 11,468 points, while the Dow Jones jumped by more than 700 points (+2.18%), to 34,589.77.
The pre-market euphoria fades but the Wall Street trend remains positive: futures on the Dow Jones are almost flat with an increase of 0.07%; S&P 500 futures rose 0.25% and Nasdaq futures rose 0.23%.
The prospect of a monetary tightening 75 basis points lower than the previous ones has also triggered purchases of US Treasuries: therefore yields are down, with those of 10-year Treasuries at 3.618% and five-year rates down to 4.343%.
“It makes sense to moderate the pace of interest rate hikes.” Thus Fed Chairman Jerome Powell, in a speech at the Brookings Institution.
Powell added that the intensity of the Federal Reserve’s monetary tightening could be moderated as early as the next meeting of the FOMC (the monetary policy arm of the US central bank), scheduled for December 13 and 14.
The head of the US central bank spoke of “significant progress” that the Fed has made “in making (monetary) policy sufficiently restrictive”.
Of course, “there is still work to be done” and “there is likely to be a need to maintain the restrictive policy for some more time”, in order to fight inflation.
On the other hand, “history sends a strong warning about the risk of easing monetary policy prematurely”, explained Jerome Powell, noting that “we have a long job to do to restore price stability”.
“It will take many more tests to be sure that inflation is really coming down – said the Fed helmsman – By any standard, inflation remains too high”.
That said, the prospect of a less hawkish Fed was priced in by the US dollar, which did a sharp about-face, sending the euro higher to $1.0441.
The euro ended November reporting the best month against the dollar since 2010, or the last 12 years. The euro-dollar started November at 0.9883 and finished the month at around $1.0418.