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US stocks hit their biggest gain in eight months on Wednesday after Federal Reserve Chairman Jerome Powell hinted that the Fed could not raise its interest rates further. The Dow Jones Industrial Average jumped 617 points.
In a speech to the New York Economic Club, Powell said that interest rates were close to "neutrality", a level at which they are not holding back growth, nor can they be seen as "neutral". helps with growth. This could mean that the Fed is not planning to raise interest rates well above their current levels. Powell also seemed to suggest that the Fed could suspend its interest rate hike cycle next year so that the central bank can badess the effects of its actions.
This relieved investors who felt the nine-year bull market could disappear if rates rise too quickly. These concerns contributed to the sharp drop in the market in October and November.
Shares rose during the morning trading session and almost tripled their earnings when Powell spoke. Bond yields fell and the dollar weakened, as investors adjusted their expectations based on how quickly interest rates could rise in the future.
After cutting interest rates to near zero before the 2008-09 financial crisis, the Fed has been lifting them regularly since the end of 2015 and is expected to post a further rally in December. But rising interest rates tend to dampen economic growth, and as growth in the United States and other regions is expected to slow down next year, investors are worried that increases will dampen the economy.
"He recognizes that if you change interest rates today, you will not feel the effects before 12 to 18 months," said Jack Ablin, chief investment officer of Cresset Wealth Advisors. "Tightening central bank rates around the world was probably the biggest risk for equity investors over the next four quarters, so it's encouraging to see the Fed Chairman say he's almost done."
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