Jerome Powell's Thoughts on the Fed's Future Moves
On Thursday, Federal Reserve Chairman Jerome Powell announced the central bank would abandon its policy to raise rates to fight inflation, according to the Wall Street Journal.
US equities rose following the news. The Dow gained 0.8 percent, the S&P 500 gained 0.5 percent, and the Nasdaq gained 0.3 percent. However, as the session approached lunchtime, the Nasdaq and S&P had fallen into the red.
Mr. Powell unveiled the central bank's new strategy, stating that it will tolerate periods when inflation runs higher than its target of 2 percent. The Fed believes this will help even out periods when it has fallen below that mark. The market is currently pricing in expectations for higher inflation.
Merk Investments analyst Nick Reece found the central bank's opinion on unemployment to be interesting. “They’re trying to bring unemployment down, and the labor-force participation rate up,” he said. Weekly jobless claims came in at 1.006 million last week.
“While this is much in line with expectations, it doesn’t change the fact that politicians need to pass something,” said Michael Hewson, a markets strategist at brokerage CMC Markets. “The likelihood is that joblessness will start to push higher. The longer it goes on, the pressure to do something will increase.”
The yield on the 10-year Treasury increased to 0.736 percent from 0.686 percent as investors abandon the safety of bonds in hopes of an economic recovery.