January 30, 2023

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Wall Street jumped after Powell's speech - the Nasdaq rose more than four percent

Wall Street jumped after Powell’s speech – the Nasdaq rose more than four percent

Fed Chair Jerome Powell’s speech on Wednesday night was expectedly closely watched – once again as market participants ponder what the Fed will do next.

The big question is what the central bank will present at the next interest rate meeting, which will be held on December 14th. The list so far this year includes, among others, four rate hikes three times in a row, in less than half a year.

However, the Fed is expected to slow down, with an interest rate increase of 0.5 percentage point – known as doubling.

Jerome Powell proved it.

Powell said it makes sense to moderate the pace of interest rate increases because we are now approaching a level of tightening that would be sufficient to bring down inflation.

– The time for this equinox could come as soon as the December meeting, Powell continued.

Within five minutes, the top indices went from hesitating around zero to clearly rising, especially for the tech-dominated Nasdaq. Since then it has only gone up. This is how it ends up for most trend-finding indicators:

  • The S&P 500 rose by 3.1 percent.
  • The Dow Jones rose 2.2 percent.
  • The Nasdaq Composite Index rose 4.4 percent.

The increase comes after a relatively restricted Tuesday, when indexes hovered around zero percent throughout the trading day. On Monday, all three were down significantly.

Not surprisingly, the rally was particularly strong for many tech companies — Alphabet, owners of Apple and Google, for example, rose 4.9 and 6.1 percent, respectively.

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Despite hints of two rate hikes in December, Powell was keen to reiterate that “there is a long way to go until we achieve price stability”.

Despite some promising developments, we still have a long way to go, he said.

Powell emphasized that now it is no longer the question of when the pace of rate hikes can be slowed that is most important, but rather the questions of how high the interest rate should be set and how long it should be tightened.

October’s inflation numbers, for example, were lower than expected, but Powell reiterated the fact that it takes time to see the effects of interest rate increases and quantitative easing.

Significantly more evidence is needed for one to settle for the fact that inflation is already on the way down. No matter how you measure it, Powell said, it’s too high.

– I would simply say we have more work to do, he added.

beige book

Shortly after Powell’s speech, the Fed’s publication of the so-called “Beige Book” was also released. The book is published eight times a year, this being the last of the year. It contains a summary of information collected by members of the Federal Reserve Bank from their regions in the United States, usually related to the current economic situation.

Economic activity in recent weeks has been roughly flat or up slightly since the previous report, but fell below the average rate of growth in the previous report, the Fed wrote.

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An hour before the opening of trading in the United States, revised official figures for the development of the US economy in the third quarter were released – the result showed a growth of 2.9 percent. This is 0.1 percentage point higher than expected according to Bloomberg, and 0.3 percentage point higher than the preliminary GDP estimate that came in at the end of October.

Lack of real signs of weakness

Just before that, human resources and payroll company ADP Payroll Services released its figures for the number of employees in the private sector. These showed an increase of 127,000 people, far short of the 200,000 people, according to Trading Economics, previously expected.

— There are still few signs of real weakness in the job market, Julia Pollack, chief economist at job-seekers portal Ziprecruiter summed up for the Wall Street Journal on Wednesday.

– Pollack has continued the layoffs that you’re seeing in the technology sector and the slowdown in the real estate market is still very limited in those few sectors that are directly affected by higher interest rates.

However, the gold standard comes later in the week, when the US Labor Department releases the Non-Farm Payrolls – often referred to as the most important number of the month – on Friday.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.

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