Wall Street finishes up sharply after Powell's comments on rates

NYSE indexes stepped up sharply on Wednesday after a speech by US Central Bank President Jerome Powell who said interest rates were "just below (…) a level that would be neutral "for the economy.

US Federal Reserve Chairman Jerome Powell appeared to report on Wednesday that the central bank was approaching the end of its rate hikes, which are now "just below" a neutral stimulates or inhibits growth.

These statements caused a sharp rise in the US stock market – the Dow Jones, the Nasdaq and the S & P 500 taking between 2% and 3% – and weighed on the dollar. They also mark a turnaround from early October, when Jerome Powell had estimated that rates were probably "still far" from the so-called neutral level and that the Fed could even go beyond the "extremely positive" evolution. of the American economy.

This change of speech, considered accommodating, comes as Donald Trump regularly criticized in recent months the rate hike undertaken by the Fed.

Jerome Powell "gave the market, and probably to Donald Trump, exactly what he wanted, namely the recognition that the previously proposed rate hike trajectory was probably too aggressive and the prospect of slowing the pace of monetary tightening", observes Oliver Pursche, head of strategy at Bruderman Asset Management.

The Fed has raised its rates three times by a quarter point since the beginning of the year and is expected to decide on a fourth increase after its next meeting on December 19th. But signs of economic slowdown around the world and nearly two months of high volatility in stock markets have tainted the almost idyllic picture offered by the US economy, where activity is growing well. beyond its potential and where unemployment is at a record low since the 1960s.

At a luncheon hosted by the New York Economic Club, Jerome Powell said the central bank had "no predefined monetary policy trajectory"and that she lent a"very tall"pay attention to the economic data it receives even if it continues to count on growth"solid", low unemployment and inflation close to its target of 2%.

He justified the rise in interest rates by pointing out that there was "many good things"in the US economic climatewhile mentioning the need to balance risks as monetary policy approaches its neutral level. "We know that the situation is often quite different from the forecasts, even the most cautious", he said.

"Our path of gradual interest rate hikes is a risk balancing exercise. "Interest rates, he added"are still low compared to historical benchmarks and remain just below the wide range of level estimates that would be neutral for the economy".

Jerome Powell gave only few clues about the expected duration of the current cycle of rate hikes but he explained that the fed funds rate, set at 2% -2.25%, was now "just below" its neutral level. He added that it was too early to see whether the recent episode of volatility in the financial markets could change the central bank's estimates of the neutral rate and the maximum level of employment.