US Fed chairman’s speech boosts Wall Street
29 November 2018
US stock markets rose sharply yesterday after US Federal Reserve chairman Jay Powell gave a speech indicating that the central bank may not go ahead with the interest rate hikes planned for next year.
In their biggest increases since March, the major Wall Street indexes were up. The S&P 500 index rose by 2.3 percent, jumping by a full percentage point immediately after Powell’s speech. The Dow Jones index ended up 2.5 percent higher, a rise of more than 600 points, while the tech-heavy NASDAQ index rose by 2.9 percent.
The spark for the market rise was a sentence at the start of Powell’s address to the Economic Club of New York. He began with a defence of the Fed’s policy of gradually increasing interest rates, which began three years ago, but indicated the rate rises could end.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy—that is, neither speeding up nor slowing down,” Powell said.
This was in stark contrast to what the chairman said less than two months ago, the last time he commented on Fed policy. On October 2, in a question-and-answer session on PBS, he said “extremely accommodative” interest rates had been needed in the past but they were “not appropriate anymore.” While interest rates were gradually moving to a neutral point, “we’re a long way from neutral at this point, probably.”
Within just eight weeks, according to the Fed chairman, the central bank’s base rate had gone from a “long way from neutral” to “just below” that level. The chief source of the change in orientation was not any major shift in the US economy, but the reaction in…