(Bloomberg) — Stocks rallied and bond yields fell after Jerome Powell said the Federal Reserve will slow the pace of increases at some point, while adding that officials would set policy on a meeting-by-meeting basis rather than offer “clear guidance” on the size of their next rate move.
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About 90% of the S&P 500 companies climbed, while the tech-heavy Nasdaq 100 soared 4.5%. Expectations for the pace of Fed rate increases eased back — with swap markets showing around 58 basis points of tightening priced in for the next meeting in September and the expected peak for the cycle dropping to around 3.3% — with that kind of level seen toward the end of this year or early in 2023.
The Fed’s boss said the central bank is moving “expeditiously” when it comes to dealing with price pressures and reassured it has the tools to do the job. Powell also noted that another unusually large boost in rates would depend on data after officials hiked by 75 basis points Wednesday. The “path has clearly narrowed” to avoid a recession, he added.
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“Powell is trying to toe the line between offering useful guidance and avoiding pre-committing to any specific policy path,” said Matt Weller, global head of research at Forex.com and City Index. “Indeed, he explicitly stated that the committee will go meeting-by-meeting and give less clear guidance now that interest rates are “in the range of neutral.”
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“After being burned on his call for transitory inflation, Powell will likely continue to try to avoid giving any hints on when they could pause,” said Ed Moya, senior market analyst at Oanda. “It seems traders aren’t thinking another large move will be justified in September.”
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“It makes complete sense,” said JPMorgan’s Jay Barry, referring to the Fed offering less clear guidance. “The Fed wanted to move expeditiously to neutral, and with the last three large-sized hikes, we are nominally now in-line with the Fed’s longer-run dot, as a representation of neutral policy expectations.”
Fresh economic data reduced the odds the US will report two straight quarters of a contracting economy and avert what is commonly regarded as a recession. Economists at Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. boosted their estimates for second-quarter gross domestic product after government reports showed firmer durable-goods shipments, a narrower trade deficit and gains in inventories last month.
Here are some key events to watch this week:
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Apple, Amazon earnings, Thursday
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US GDP, Thursday
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Euro-area CPI, Friday
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US PCE deflator, personal income, University of Michigan consumer sentiment, Friday
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Some of the main moves in markets:
Stocks
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The S&P 500 rose 2.8% as of 3:38 p.m. New York time
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The Nasdaq 100 rose 4.5%
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The Dow Jones Industrial Average rose 1.6%
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The MSCI World index rose 2.1%
Currencies
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The Bloomberg Dollar Spot Index fell 0.6%
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The euro rose 0.9% to $1.0210
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The British pound rose 1.2% to $1.2173
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The Japanese yen rose 0.2% to 136.57 per dollar
Bonds
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The yield on 10-year Treasuries declined two basis points to 2.79%
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Germany’s 10-year yield advanced two basis points to 0.95%
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Britain’s 10-year yield advanced four basis points to 1.96%
Commodities
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West Texas Intermediate crude rose 3.6% to $98.42 a barrel
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Gold futures rose 0.9% to $1,751.80 an ounce
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