Stocks Rally Even After Powell Reiterates That Fed Will Keep Raising Rates

Topline

The stock market rose slightly on Thursday even as recession fears continued and investors assessed comments from Federal Reserve Chair Jerome Powell, who pledged that the central bank is “strongly committed” to bringing down inflation with rate hikes for the foreseeable future.

Key Facts

The Dow Jones Industrial Average was up 0.4%, over 100 points, while the S&P 500 gained 0.4% and the tech-heavy Nasdaq Composite 0.4%.

Stocks initially opened lower following a big rate hike from the European Central Bank, which raised interest rates by 75 basis points in an attempt to combat high inflation in the Eurozone.

Markets at first continued to fall after Powell said at a Q&A session with the Cato Institute that the Fed will continue to aggressively raise rates until inflation comes down meaningfully, though stocks turned positive shortly after his comments.

“History cautions strongly against prematurely loosening policy,” Powell said, adding he and his colleagues are “strongly committed” to bringing down consumer prices and “will keep at it until the job is done.”

His remarks come ahead of the Fed’s next policy meeting later this month, where traders are widely expecting the central bank to raise rates by 75 basis points for a third consecutive time, following similar hikes in June and July.

Weekly jobless claims, meanwhile, hit their lowest level since May in a sign that the labor market remains strong, adding to a recent batch of solid economic data which has led investors to bet on the Federal Reserve hiking interest rates more aggressively and for a longer period of time.

Crucial Quote:

Powell and other Fed officials have repeatedly “seemed to imply that progress toward taming inflation has not been as uniform or as rapid as they would like,” according to a note from Goldman Sachs analysts on Thursday. Amid all the hawkish commentary from the central bank, Goldman now predicts that the Fed will raise rates by 75 basis points later this month, by 50 basis points in November and another 25 basis points in December.

Key Background:

Stocks are struggling to hold onto recent gains after markets solidly rebounded on Wednesday, posting their best day in almost a month as the Dow and S&P 500 gained 1.4% and 1.8%, respectively. Still, stocks are looking to avoid a fourth straight week of losses, on a downward trend since last month as the summer rally from the market’s low point in June now looks to have completely fizzled out. Investors have grown increasingly concerned about a potential recession as the Fed continues to aggressively hike rates and tighten monetary policy. In his most previous public remarks at the Fed’s annual Jackson Hole symposium in late August, Powell said the central bank will not “stop or pause” raising interest rates until inflation comes back down fully.

Further Reading:

Dow Falls Nearly 200 Points As ‘Gloomy’ Investors Brace For Higher Interest Rates (Forbes)

Oil Prices Hit Seven-Month Low As Recession Fears Weigh On Demand (Forbes)

Dow Falls Over 300 Points Despite Solid Jobs Report, Stocks Post Third Straight Week Of Losses (Forbes)

The Stock Market’s Summer Rally Is Over And Investors Should Prepare For A Rough September (Forbes)