- Fed Chair Jerome Powel revealed a possible rate-hike pace slowdown.
- Powell’s speech saw stocks rallying as the dollar tanked.
- Fed to execute a 50 basis points rate increase in December.
It was Fed Reserve’s Chair Jerome Powell to move the financial markets once again. The highly awaited Brookings Institution’s Wednesday speech saw Powell signaling that the Federal might slow the rate-increase pace in December. Brookings Institution is a Washington-based think tank.
The Chair commented on inflation, the labor market, and the current economic outlook – crucial topics for the financial market players. Meanwhile, the events had analysts viewing the FOMC Meeting (scheduled in the coming two weeks) to mark the Fed rate hikes peak.
Meanwhile, financial markets hardly wait for validation. Instead, they fluctuate in expectation of what’s about to showcase. Thus, while the Federal Reserve will keep hiking rates, tightening the financial space, the markets perceived it as a signal that Fed’s tightening will end soon.
The primary Federal concern is to prevent overtightening, considering the time required for rate increases to affect the economy. Moreover, labor-market imbalances top the list regarding Federal priorities during economic interpretation.
Meanwhile, wage growth stays well above zones that keep inflation around the Federal’s 2% target. Thus, market players will focus on this Friday’s stats referring to November wage growth.
The markets responded with a broad frenzy amidst a massive stock rally. Meanwhile, the United States dollar dived. That saw the EUR-USD exchange rate climbing beyond 1.04 from 1.03 earlier this week. The Dow Jones gained over 1,000 points after Powell’s speech. Nevertheless, why this response from the markets?
Remember that Fed plans another 50bp hike in December. The answer is everyone has been waiting for such a pivot. The Federal Reserve is a top central bank, and pivoting will mean its sees signals of inflation cooling. Consequently, other banks will follow, translating to an imminent tightening peak.
Nevertheless, it remained a hawkish speech, considering all this year’s events and how the Federal responded to the hurdles in satisfying its mandate. Could it be that the Federal set the grounds for Santa Rally in the stock markets?