(Bloomberg) — Stocks rallied after Jerome Powell signaled a likely slowdown in the pace of tightening as early as December, while indicating more hikes will be needed to curb inflation.
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The S&P 500 erased losses and headed for a new milestone: its longest monthly winning streak since August 2021. Gains in the tech-heavy Nasdaq 100 topped 3% as bond yields fell with the dollar.
“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in the text of his speech. “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”
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Powell also said rates are likely to reach a “somewhat higher” level than officials estimated in September, when the median projection was for 4.6% next year. Those projections will be updated at the December meeting.
“This rally is a nonsense: Powell said they will slow down, but that rates will have to go higher than forecasted earlier,” said Milan-based market veteran Roberto Bagnato at Immobiliare Quadronno Srl. “The market wants to listen only to the first part of Powell’s statement.”
Officials have signaled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on Dec. 13-14, after four successive 75 basis-point hikes which have lifted it to a 3.75% to 4% target range.
Ahead of Powell’s remarks, Fed Governor Lisa Cook said it would be prudent for the central bank to make smaller hikes as it determines how high it will need to go to tame price gains.
Traders also scoured several economic reports, with key gauges of US activity painting a mixed third-quarter picture. Job openings fell in October — a hopeful sign for the Fed as it seeks to curb demand.
The figures precede Friday’s jobs report, which is currently forecast to show employers added 200,000 workers to payrolls in November. Economists are expecting the unemployment rate to hold at 3.7%, and for average hourly earnings to moderate.
“You’re still not in a recession yet, but growth is slowing, and you’re just seeing this volatility of trying to price this in. It’s a challenge,” Matt Miskin, co-chief investment strategist at John Hancock Investment Management, said at Bloomberg’s New York headquarters. “It’s like a traffic light going red-green, red-green.”
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Key events this week:
S&P Global PMIs, Thursday
US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
BOJ’s Haruhiko Kuroda speaks, Thursday
US unemployment, nonfarm payrolls, Friday
ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
The S&P 500 rose 1.9% as of 2:27 p.m. New York time
The Nasdaq 100 rose 3.4%
The Dow Jones Industrial Average rose 1%
The MSCI World index rose 1.7%
The Bloomberg Dollar Spot Index fell 0.6%
The euro rose 0.6% to $1.0391
The British pound rose 0.7% to $1.2037
The Japanese yen rose 0.3% to 138.22 per dollar
Bitcoin rose 3.8% to $17,078.1
Ether rose 6.3% to $1,295.76
The yield on 10-year Treasuries declined four basis points to 3.70%
Germany’s 10-year yield was little changed at 1.93%
Britain’s 10-year yield advanced six basis points to 3.16%
West Texas Intermediate crude rose 2.9% to $80.45 a barrel
Gold futures rose 0.7% to $1,776.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from John Viljoen, Vildana Hajric, Peyton Forte and Cecile Gutscher.
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