The euphoria on Wall Street caused by the words uttered yesterday by the chairman of the Fed, Jerome Powell, in a speech at the Brookings Institute has completely died down.
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. Buying boom on Wall Street: the S&P 500 index gained 122 points, +3.1% to 4,084, positioning itself above the 200-day moving average 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.
But now, at around 12.30am GMT, Dow Jones futures are down 0.18%, Nasdaq futures are down 0.27%, S&P 500 futures are down 0.10%
The prospect of monetary tightening less than the previous ones by 75 basis points also triggered purchases on US Treasuries, with yields pointing downwards. US Treasury yields continue to fall with 10-year yields falling to 3.609%. The prospect of a less hawkish Fed was also priced in by the US dollar, which made a sharp about-face, sending the euro higher to $1.0441.
“It makes sense to moderate the pace of interest rate hikes,” Powell said, opening up the possibility of a smaller scale of monetary tightening as early as the December meeting.
Powell spoke of “significant progress” the Fed has made “in making (monetary) policy tight enough.”
But “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”.
In short: “It will take many more tests before we can be sure that inflation is really going down – said the Fed helmsman – By any standard, inflation remains too high”.
In fact, there is no shortage of economists who are warning investors, recalling that the fact that the extent of the tightening is slowing down does not exclude Powell’s determination to aim for a higher terminal rate than he himself had previously forecast, in the its fight against inflation.
The central banker confirmed his view that fed funds rates are likely to rise to 5% or more.
Powell also reiterated that a recession may be needed to bring prices down, and that a “soft landing” is still possible. On this point, not everyone agrees: in fact, some fear a hard landing, and therefore a serious recession.
Among the most active stocks in the premarket, Salesforce, the cloud computing company: shares fall by 6.5% after the news relating to the resignation of co-CEO Bret Taylor. Snowflake (also a cloud company) was also down, down by around 5.7% after providing guidance on revenues that did not convince the markets.