After resisting pressure and public condemnation by US President Donald Trump for months on account of not cutting interest rates, Federal Reserve chair Jerome Powell hinted on Friday that officials may be considering a rate cut.
Acknowledging recent inflationary pressures, Powell spoke at the conclusion of the Jackson Hole symposium in Wyoming about the “rising downside risks to employment”, which have paved the way for potential rate reduction in September when the Fed meets on the 16th and the 17th.
Powell has been at the receiving end of Trump’s criticism of the chair, calling for his resignation and questioning the Fed’s independence.
Powell’s speech was met with enthusiasm from investors, reflected in Dow Jones Industrial Average reaching its all-time high of 45,631.74 after soaring 846.24 points, or 1.89 per cent.
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The S&P 500 gained 1.5 per cent and ended just below the all-time high it had set last week, while the Nasdaq Composite climbed 1.9 per cent to finish at 21,496.53.
Megacap technology stocks led the rally following Powell's comments, with tech major Nvidia rising 1.7 per cent, Meta Platforms adding over 2 per cent, Alphabet and Amazon each gaining more than 3 per cent, and Tesla shares surging nearly 6 per cent.
Economists at Goldman Sachs wrote in a note that Powell’s speech was consistent with their expectations of a quarter-point cut to the Fed’s short term rate from its current 4.3 per cent.
Powell noted in his speech that the “balance of risks appears to be shifting”, which means the Fed may not wait for inflation to be at its target position before adjustment of rates.
"Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers," Powell said. "This unusual situation suggests that downside risks to employment are rising. And as those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” he said.
Powell also announced a reversal of a five-year-old policy that could keep long-term interest rates slightly higher, but it was unclear if the central bank would opt for rate cuts in all of the three meetings slated for this year, in September, late October, and December.
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