- Less aggressive than anticipated remarks from Fed Chair Powell that boosted sentiment.
- Powell stated that Friday’s surprise jobs report could mean more time in the fight against inflation.
- Markets are now pricing in a terminal Fed rate above 5% in June.
Equities rose in late New York session on Tuesday while the dollar fell following less aggressive than anticipated remarks from Federal Reserve Chair Jerome Powell that boosted sentiment and fueled investor hopes the central bank may soon soften monetary policy.
In a much-anticipated address earlier on Tuesday, Fed Chairman Powell reaffirmed that disinflation had started. Still, he also cautioned that Friday’s shocking employment report demonstrated why the fight against inflation will “take quite a bit of time.”
These employment figures revealed an unexpected gain of 517,000 new jobs in January, igniting concerns that the tight labor market may force the Fed to maintain its aggressive stance.
The Fed pushed up rates by 25 basis points last week, declaring that the fight against high inflation was at a turning point but foreseeing the necessity for “ongoing rises” in borrowing costs.
Although the central bank is expected to cut rates by the end of the year, markets are now pricing in a terminal rate of above 5% in June.
Morgan Stanley stated that it increased its projection for the May policy meeting by 25 basis points in response to Powell’s remarks but that it maintained its expectation for the first 25 basis point rate cut to occur in December 2023.
Before the Fed’s meeting in March, investors will examine data to determine the economy’s direction.
China’s markets dropped 0.2% as the US-China balloon disagreement simmered, and some investors booked profits following recent advances.
In his State of the Union speech yesterday, US President Joe Biden encouraged Republicans to adopt tax policies that would benefit middle-class Americans and raise the nation’s debt ceiling.
Over half of the S&P 500 businesses have so far released their quarterly profits, and 69.1% of them outperformed forecasts, according to Refinitiv. Nevertheless, experts anticipate a 3.1% fall in fourth-quarter earnings.
As the year goes on, investors’ attention will switch from high interest rates and persistent inflation to how much the economy is slowing down and how that will affect profits. However, the markets are currently feeling a little optimistic that the Fed is approaching its peak and that the recession might be avoided, which could result in a small rally.
