Wall Street rallies as Fed’s Powell nods to easing inflation after rate hike

Wall Street rallies as Fed's Powell nods to easing inflation after rate hike
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  • The Federal Reserve hikes interest rates by 25 basis points
  • Powell says disinflation has set in for the first time
  • Indices up: Dow 0.02%, S&P 1.05%, Nasdaq 2%

Feb 1 (Reuters) – The S&P 500 and Nasdaq ended sharply higher on Wednesday after Federal Reserve Chair Jerome Powell admitted in a remark he made following a quarter-point rate hike by the Federal Reserve that inflation will subside.

Wall Street’s main indices lost ground immediately after the Fed announced its rate hike decision. His statement also said “ongoing increases” in interest rates would be appropriate.

But indexes bounced off their lows and continued to gain ground shortly after Powell began speaking to reporters, with the S&P ending up 1% and the Nasdaq 2%.

According to Angelo Kourkafas, investment strategist at Edward Jones, St. Louis, investors were heartened by Powell’s response to a question about easing financial conditions such as rising stocks and falling bond yields over the past few months.

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“He had an opportunity to deliver a restrictive message and he didn’t take it. He could have said markets were overly excited and he didn’t take the opportunity. Instead, he said that a lot of tightening has already taken place,” he told Kurkafas.

Because Powell said he could, for the first time, acknowledge that disinflation had begun, investors saw his suggestion that there could be two more rate hikes as a “placeholder,” the strategist said.

The Dow Jones Industrial Average (.DJI) rose 6.92 points, or 0.02%, to 34,092.96, the S&P 500 (.SPX) rose 42.61 points, or 1.05%, to 4,119.21 and the Nasdaq Composite (.IXIC) added 231.77 points, or 2%, to 11,816.32.

In the afternoon rally, the S&P posted its highest close since August. 25 while the Nasdaq posted its highest close since September.

Of the S&P 500’s 11 major industrial sectors, only energy ended the day lower (.SPNY)Down 1.9% amid interest-rate-sensitive tech stocks (.SPLRCT) were the biggest winners, up 2.3%.

Investors focused mainly on the Fed’s path forward as the size of the hike for its first policy meeting of the year matched expectations after rapid hikes in 2022, including a 50 basis point rate hike in December.

After the press conference, money markets were betting on a 4.892% closing rate in June, compared to bets on 4.92% just before the Fed’s statement.

US futures are still pricing in rate cuts this year, with the fed funds rate at 4.403% through the end of December, the same as before the meeting.

Recent readings have shown that inflation is easing, with the Fed also looking at data that will determine job market resilience and the pace of wage growth.

But data displayed Job offers in the USA rose unexpectedly in December ahead of the Labor Department’s comprehensive nonfarm payrolls report for January, due Friday.

Separate economic data showed US manufacturing Contracted continued in January as higher interest rates dampened demand for goods.

All three indices had a strong start to the year, along with the S&P (.SPX) and the Dow (.DJI) They saw their first gain in January since 2019 as investors returned to markets battered by a hawkish Fed the previous year.

Rising issues predominated on the NYSE at a 2.86 to 1 ratio; on the Nasdaq, and the 2.28 to 1 ratio favored movers.

The S&P 500 posted 24 new 52-week highs and no new lows; the Nasdaq Composite posted 136 new highs and 23 new lows.

About 13.7 billion shares changed hands on US exchanges, compared to the daily average of 11.5 billion over the past 20 sessions.

Reporting by Sinéad Carew and Stephen Culp in New York, Johann M. Cherian and Shreyashi Sanyal in Bengaluru; Additional reporting by Ankika Biswas; Edited by Sriraj Kalluvila, Maju Samuel and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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