- Powell said the Federal Reserve would continue raising rates to tame inflation.
- Investors are split between a 50 and 75 basis point rate hike in September.
- This week’s jobs data will shine a light on the US economy.
The E-mini S&P 500 (ES) futures closed Friday lower as the Federal Reserve’s chief, Jerome Powell, dashed some investors’ fledgling hopes for a more moderate policy course. He indicated that the central bank would maintain higher rates to manage inflation.
The high-growth technology stocks that had rallied the day before in anticipation of Powell’s scheduled speech to the Jackson Hole central banking conference in Wyoming fell, pushing the Nasdaq, one of the three US benchmarks, into decline. This was the index’s worst daily performance since June 16.
Before inflation is under control, the US economy will require a strict monetary policy “for some time,” Powell said at the event. According to him, this will result in slower growth, a weaker employment market, and “some pain” for consumers and businesses.
Investors anticipated future rate increases and were split on whether the Fed will raise rates by 50 or 75 basis points next month.
To counteract two consecutive quarters of negative economic growth, recent data showing ongoing strength in the job market had some thinking a more moderate pace of raises would be on the way.
Since the beginning of the year, the E-mini S&P 500 (ES) futures declined as investors priced in the likelihood of aggressive interest rate increases and a slowing economy.
However, it had made a significant comeback since June, recovering about half of its yearly losses on the back of stronger-than-expected quarterly results and hopes that decades-high inflation had crested.
But the slight gains made in August were erased by Friday’s drops, sending the future into its second straight week of losses.
The world’s largest economy’s monthly jobs report, released on September 2, will test the concept that it is in good shape. It will show if the Federal Reserve can implement a “soft landing” while raising interest rates to combat inflation that has been running at four-decade highs.
American unemployment rates have returned to pre-pandemic levels. This has given investors hope that the US economy might survive rising rates without tipping into a recession. Therefore, much weight will be placed on this week’s jobs report.