Wall Street closes higher after Fed Chair Powell delivers a ‘Goldilocks’ speech

Stocks blasted higher in afternoon trading Friday, even after Federal Reserve Chair Powell warned in comments in Jackson Hole, Wyoming, that central bank officials were “prepared to raise rates further.”

Traders appeared to shake off fears of future rate hikes, and instead focused on the positive parts of Powell’s speech where he applauded strong economic growth.

“The market may have been comforted by Powell acknowledging that recent inflationary data has been encouraging and thus, interest rates are unlikely to move much higher from here,” said Brian Price, head of investment management for Commonwealth Financial Network.

In corporate news, shares of Affirm closed nearly 30% higher. The buy now, pay later firm beat earnings expectations on Friday morning and issued positive guidance for the rest of the year.

Shares of Hasbro grew by 5.7% after investment bank Stifel shifted its price target for the stock from $79 to $94.

The Dow jumped 241 points, or 0.7%, on Friday.

The S&P 500 gained 0.6%.

The Nasdaq Composite was 1% higher.

For the week, the Dow fell 0.4%, the S&P 500 gained 0.8% and the Nasdaq was up 2.3%.

Christine Lagarde is seen at the Jackson Hole economic symposium on Friday.

European Central Bank President Christine Lagarde delivered a message that was nearly identical to that of Federal Reserve Chair Jerome Powell.

In a luncheon address from Jackson Hole, Wyoming, Lagarde said the central bank is standing firm on its goal to achieve 2% inflation. In doing so, she said the ECB will continue to set interest rates “at sufficiently restrictive levels for as long as necessary.”

Unlike Powell, she stressed in her remarks the importance of “maintaining public confidence” by helping households understand the ECB’s actions and miscalculations. That’s why the central bank has been “publishing the main factors behind our inflation forecast errors and we intend to continue doing so,” Lagarde said Friday.

Eurozone inflation is at 5.3% as of July, according to Eurostat data. Given their proximity to the war in Russia and Ukraine, Eurozone countries are much more vulnerable to supply shocks that are propping up inflation, compared to the United States.

Jerome Powell walks the grounds at the Jackson Hole economic symposium.

The Fed wants “below-trend growth”

Federal Reserve Chair Jerome Powell said Friday there is still a risk that inflation won’t come down to the Fed’s 2% target as the central bank faces the proverbial last mile in its battle with higher prices.

“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said.

Generally, if demand is red hot, employers will want to hire to meet that demand. But many firms continue to have difficulty hiring, according to business surveys from groups such as the National Federation of Independent Business. In theory, that could prompt wage increases in order to secure talent — and those higher costs could then be passed on to consumers.

While some Fed officials back a more aggressive stance on fighting inflation, others think there will eventually be enough restraint on the economy and that more hikes could cause unnecessary economic damage. The lagged effects of rate hikes on the broader economy are a key uncertainty for officials, since it’s not clear when exactly those effects will fully take hold. Research suggests it takes at least a year.

Acknowledging progress on inflation

Powell pointed to the steady progress on inflation in the past year: The Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — rose 3% in June from a year earlier, down from the 3.8% rise in May. The Commerce Department officially releases July PCE figures next week, though Powell already previewed that report in his speech. He said the Fed’s favorite inflation measure rose 3.3% in the 12 months ended in July.

The Consumer Price Index, another closely watched inflation measure, rose 3.2% in July, a faster pace than the 3% in June, though underlying price pressures continued to decelerate that month.

In his speech Friday, Powell stood firmly by the Fed’s current 2% inflation target, which was formalized in 2012 — at least for now. The Fed is set to review its policy framework around 2025, which could be an opportunity to establish a new inflation target.?

An economy more resistant to monetary policy?

Powell also weighed in on an ongoing debate among economists about whether the “neutral rate of interest,” also known as r*, is higher since the economy is still on strong footing despite the Fed’s aggressive pace of rate hikes.?

In theory, the neutral rate is when real interest rates neither restrict nor stimulate growth. The Fed chair said higher interest rates are likely pulling on the economy’s reins, implying that r* might not be structurally higher,?though he said it’s an unobservable concept.

“We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint,” Powell said.

Either way, while the Fed chief hinted that more rate hikes might be coming down the pike, there’s no guarantee either way.

Stocks recovered some of their losses Tuesday afternoon after initially falling as investors reviewed?Federal Reserve?Chair Jerome?Powell’s speech at the Jackson Hole economic summit.

The Dow rose 125 points, or 0.4%, the S&P 500 gained 0.2% and the Nasdaq Composite added 0.1%.

During his highly anticipated speech, Powell said the central bank is maintaining its 2%?inflation?target and that more rate hikes could be needed to stabilize prices. While stocks held relatively steady during his speech, they turned lower as investors parsed his comments.

“The initial market reaction after the speech was to go lower, but keep in mind that Nvidia’s blowout earnings weren’t enough to ignite a market rally, so it’s not surprising that?Powell’s ambivalent stance isn’t getting the bulls running again either,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

The Dow is on track to end the week down, while the S&P 500 and Nasdaq Composite are on pace to gain.

Federal Reserve Chairman Jerome Powell’s speech is seen on a television screen as traders work in the New York Stock Exchange on Friday.

Here’s what Wall Street has to say about?Federal Reserve?Chair Jerome?Powell’s speech Friday morning:

Since July 2022, Federal Reserve officials have been unanimous on interest rate decisions at each meeting. But that might not be the case much longer.

While Philadelphia Fed President Patrick Harker expressed skepticism Friday over the need to continue hiking, Cleveland Fed President Loretta Mester echoed Fed Chair Powell’s message of leaving the door open for more rate hikes.

“We don’t want to be satisfied because inflation remains too high,” Mester said in an interview with CNBC from Jackson Hole, Wyoming. “We need to see more evidence to be assured that it’s coming down in a sustainable way and in a timely way.”

Like Powell, she stressed that the central bank needs to be “very careful” not to hike rates higher than the level required to get inflation to the Fed’s target of 2%. Mester is currently an alternate Fed official at policy meetings but will vote on interest rate decisions in 2024.

Harker reiterated that he’s committed to achieving the Fed’s goal but is much more keen on taking a wait-and-see approach for the time being.

“Just keep the pressure going, let this work through,” Harker said in a Jackson Hole interview with Bloomberg on Friday. In other words, he doesn’t think it’s necessary to introduce more stressors in the economy through rate hikes when the effects of prior hikes haven’t fully materialized. Harker will be voting on interest rate decisions for the Fed’s three remaining meetings of the year and won’t be able to vote next year.

At the center of the debate is Chicago Fed President Austan Goolsbee, who appears to be undecided about what the Fed should do going forward, let alone at its meeting next month.

However, if current economic trends continue to play out, “our argument is going to revolve around how long should we keep rates at the levels they are, rather than how much higher should the rates go,” Goolsbee said Friday in a CNBC interview from Jackson Hole.

Like Harker, Goolsbee will be voting on interest rate decisions for the rest of the year.

US stocks gave up earlier gains and tumbled in late morning trading as traders chewed on Federal Reserve Chair Jerome Powell’s Jackson Hole speech.

The Dow was up 40 points, or 0.1%. The S&P 500 fell 0.1% and the Nasdaq dropped 0.3%.

During his speech, Powell struck a hawkish tone, leaving the door open for future interest rate hikes.

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Powell said Friday morning.

The July Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, is set to be released publicly on Thursday, August 31. But Fed Chair Jerome Powell gave a sneak peek Friday into a key figure from the upcoming report.

“Inflation peaked at 7% in June 2022 and declined to 3.3% as of July,” Powell said Friday in his Jackson Hole speech, referring to annual inflation rates. The latest PCE report showed prices rose 3% for the 12 months ending in June.

If the report does indeed show 3.3% inflation in July, that would mean inflation heated up slightly from the previous month. That was the case with July’s Consumer Price Index report — although the month-to-month increase in the annual rate of inflation primarily stemmed from baseline effects comparing last year’s inflation rate to this year’s.

Traders work on the floor of the New York Stock Exchange during morning trading on Friday.

Americans’ attitudes toward the US economy appear to be growing more tepid.?

The University of Michigan’s closely watched consumer sentiment index measured 69.5 in August, down slightly from July. The reading is in line with estimates released earlier this month.

“Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead,” said Joanne Hsu, director of the university’s Surveys of Consumers, in a statement Friday.?

Sentiment levels essentially moved “sideways” in August, Hsu said. Consumers’ slight trepidation bucks a recent trend of sharp upswings in optimism. But the August reading still remains well above the lows hit last summer when inflation raged to decades-high levels.

“This month’s reading reflects divergent views of consumers, with some emphasizing the stark improvement over last summer’s excessively high inflation and others focusing on the lack of notable changes in economic conditions this month,” Hsu said. “With strong income expectations, consumers may be hopeful that the economy will be on an upswing again, but for the moment they are reserving judgment.”

Inflation expectations for the year ahead ticked down to 3.3% from 3.4% in July, showing “remarkable stability” but still trending higher than pre-pandemic expectations, which ranged in the 2.3% to 3% range.

Inflation expectations are crucial data points for the Federal Reserve. If consumers believe prices will remain high, that could factor in to increased wage demands, which could cause businesses to raise prices and put upward pressure on inflation.

The Federal Reserve is not budging on its 2% inflation target, even as some economists argue it should.

“Two percent is and will remain our inflation target,” Fed Chair Jerome Powell said in his Jackson Hole speech on Friday, reiterating the central bank’s commitment to a “sufficiently restrictive” policy to bring prices down over time.

While the target is clear, the path toward it is less so. Powell pointed to the difficulty of measuring progress given the “uncertainty about the duration of the lags with which monetary tightening affects economic activity, and especially inflation.”

In an op-ed for the Wall Street Journal earlier this week, economist Jason Furman argued that it’s time to rethink the 2% goal.

“If the Fed were adopting an inflation target from scratch, it would likely choose a target above 2%,” he wrote. “A higher target inflation rate has costs…But a higher target also has the benefit of helping cushion the economy against severe recessions.”

It’s not an uncommon argument among economists, though it’s one that does not appear to move Chair Powell.

Federal Reserve Chairman Jerome Powell’s speech is seen on a television screen as traders work on the New York Stock Exchange floor on Friday.

Wall Street cheered Federal Reserve Chair Jerome Powell’s comments at the annual Jackson Hole economic symposium on Friday morning.

The Dow was up 88 points, or 0.3%, following the 13-minute speech. The S&P 500 gained 0.4% and the Nasdaq was 0.3% higher.

While Powell said that further interest rate hikes were on the table, his relatively neutral stance was a departure from his speech last year when he warned investors that the Fed’s war on inflation would mean “pain” for US households.

At the conclusion of his speech in 2022, the Dow began a 1,000-point selloff.

Investors are currently pricing in a 23.5% chance of a rate hike in September, according to the CME FedWatch tool.

Federal Reserve Chair Jerome Powell said Friday the central bank’s fight to lower inflation has challenged banks. Specifically, he pointed out that “bank lending standards have tightened, and loan growth has slowed sharply.”

That’s a worrisome sign for the broader economy, Powell said, adding that this could dampen economic growth. “For example, growth in industrial production has slowed, and the amount spent on residential investment has declined in each of the past five quarters,” he said.

When the Fed raises interest rates, that makes it more expensive for banks to borrow money. Because of the added expense, they have to be more selective about who they loan to.

During the pandemic, when rates were at near-zero levels, banks lent money more broadly to businesses and consumers.

Additional interest rate hikes are still on the table and rates could remain elevated for longer than expected, Federal Reserve Chair Jerome Powell said Friday.

In a highly anticipated speech Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell said the Fed will pay close attention to economic growth and the state of the labor market when making policy decisions.

“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

The exterior of the New York Stock Exchange on August 21.

US stocks opened higher on Friday morning as investors awaited a key speech from Federal Reserve Chair Jerome Powell.

Powell is set to speak at the annual Jackson Hole economic symposium at 10:05 a.m. ET.?

Fed chiefs have often used the Jackson Hole summit as an opportunity to deliver important messages to investors and the public at large. Last year, Powell warned the Fed’s war on inflation would mean “pain” for US households — a point that startled investors, setting off a 1,000-point selloff for the Dow. Since then, the Fed has increased interest rates by three percentage points to their highest level since 2001.

This time around, Wall Street is expecting the Fed head to take a more nuanced stance — the market is pricing in just a 20% chance of a rate hike in September.

Still, investors appear uneasy about what could come out of the speech: The Dow plummeted more than 350 points by the end of Thursday trading.

In corporate news, shares of Hawaiian Electric fell by nearly 20% following news that the government of Maui is suing the utility for damages over the wildfires that ravaged the island earlier this month.?

Shares of Affirm, meanwhile, popped by more than 18% after the payment company beat earnings estimates and increased its guidance for the rest of the year.?

The Dow was up 153 points, or 0.5%, on Friday morning.

The S&P 500 gained 0.4%.

The Nasdaq Composite was also 0.4% higher.

US stocks were higher Friday as investors await a key speech from Federal Reserve Chair Jerome Powell.?

Investors will listen closely for clues about the future of interest rate hikes, but worry that the economically painful hikes will stay in place for longer than they originally anticipated.?

Boston Fed President Susan Collins told Yahoo Finance on Thursday it is “extremely likely” the central bank will need to hold interest rates high to bring down inflation.?

“I think it’s extremely likely that we will need to hold [interest rates at current levels] for a substantial amount of time,” Collins said. “But exactly where the peak is I would not signal right at this point. We may be near [a peak], but we may need to increase a little bit further.

Visitors are seen in the lobby of the Jackson Lake Lodge at Grand Teton National Park near Jackson Hole, Wyoming, on Thursday.

Central bank officials from across the world have?descended upon?Jackson Hole, Wyoming this week to discuss policy decisions that will shape the economy for years to come.

But as they talk about inflation and the economy in the abstract, residents of the popular vacation destination are very much feeling the realities of their policies. That’s because Jackson Hole is the most economically unequal place in the United States,?according to the Economic Policy Institute.

The snow-kissed peaks and verdant valleys of Jackson Hole, Wyoming — where Federal Reserve Chair Jerome Powell is due to give a highly anticipated speech on Friday — aren’t just awe-inspiring. They’re also symbolic.

Among the top 1% in Teton County (where Jackson Hole is located), the average?annual income?is a jaw-dropping $22.5 million. The median household income in Teton County in 2021, meanwhile, was about $94,000, according to the?US Census Bureau.

The annual August symposium of global financial leaders and economic elites wouldn’t happen without the servers, cooks, drivers and hotel and event staff who make it function — the same people feeling the hard impact of elevated inflation, high interest rates and a softening economy the most.

“If you look at income, Jackson Hole is really a microcosm of the nation’s wealth inequalities laid out across these dramatic landscapes of the Mountain West,” said Kenan Fikri, director of research at The Economic Innovation Group, a bipartisan policy organization. “It’s a ground zero for understanding how inflation affects the budgets of lower-earning households when they’re already financially stressed.”

Read more here.

Jerome Powell walks the grounds at the Jackson Hole economic symposium on Thursday.

At last year’s Jackson Hole summit, Federal Reserve Chair Jerome Powell delivered a fiery eight-minute speech that stunned markets into submission and led to an almost 15% correction in the S&P 500.

Powell won’t be repeating those fireworks this time around, analysts say. Not only are markets more closely aligned with the Fed head, but inflation is in a much better place.

Still, “we don’t recall a?Jackson?Hole speech so hotly awaited,” said Chris Rupkey, chief economist at FwdBonds.

“It is a miracle that the economy is still standing after $5 dollar gasoline prices and the Fed’s rapid rate hikes last year,” he wrote in commentary issued Thursday.

“Fed officials may need to tinker with their economic models because monetary policy is having less effect on the economy than it did in prior years and decades. It is a good thing inflation is coming down because the economy is not slowing down,” Rupkey wrote.

“The current group of Fed officials are one of the luckiest in history and the days for more and more interest rate hikes are likely nearing the end. The inflation battle is not over, but the central bankers have the upper hand,” he wrote.

The Grand Tetons are seen on Wednesday.

Most of the year, people visit Jackson Hole, Wyoming, to ski, fly fish or simply enjoy the region’s vast natural beauty. But for three days in late August, the city situated in the heart of Grand Teton National Park transforms into Woodstock for economists.

There, top economists from across the globe rub shoulders with one another and mingle with reporters and investors hungry for clues about their economic outlooks. But instead of the Grateful Dead, the headliner of the festival taking place from August 24-26 is Federal Reserve Chair Jerome Powell (who admits he is a Deadhead).

He’ll take the stage at the 46th such festival hosted by the Kansas City Fed, formally known as the Jackson Hole Economic Symposium, at 10:05 a.m. ET on Friday. But despite all the hype, his “set” could last under 10 minutes, like last year. And yet, those brief remarks in 2022 were powerful enough to roil markets.

No matter what comes out of the conference this year, it’s clear that what happens in Jackson Hole doesn’t stay in Jackson Hole.?

Read more here.

When Federal Reserve Chair Jerome Powell spoke this time last year at the?Kansas City Fed symposium in Wyoming, he warned that interest rate hikes would mean “pain” for US households. The Dow Jones Industrial Average index sank 1,000 points?in?response.

Will history repeat itself?

Some investors say they expect Powell to reiterate the Fed’s commitment to tamping down inflation while acknowledging the progress that’s been made.

But the market is unlikely to react quite as dramatically this time around, they say, partly because Powell’s speech will likely be similar to the kind of commentary he has delivered following recent policy meetings.

“Expect a balanced assessment with no abrupt hawkishness, but no mission accomplished: The Fed has not come this far to let inflation slip out of its grasp,” wrote Evercore ISI strategists in a note on Tuesday.

While it’s unclear if?the Fed will raise interest rates again?this year — Powell has signaled at least one more increase?— Wall Street has the end of the central bank’s aggressive rate-hiking campaign?in?its sights.?That’s a key difference from last year.

“In August of 2022, Powell knew the Fed had several more rate hikes to go. Today, the Fed may be near the end of this hiking cycle. That is going to require him to be a lot more nuanced in his speech,” said Tom Graff, head of investments at Facet.

Traders see a roughly 85% chance that the Fed will hold rates steady at its next meeting, in September, according to the CME FedWatch Tool. Expectations for whether the central bank will pause or raise rates for the rest of the year are more divided, with narrow majorities for no change in November or December.

James Bullard gestures during an interview in November 2019.

The US economy has not cooled down enough yet for the Federal Reserve to pause its rate-hiking campaign, warned former Federal Reserve Bank of St. Louis President James Bullard in an interview Thursday.

Citing the summer slew of strong economic reports, Bullard told Bloomberg: “This reacceleration could put upward pressure on inflation” and “delay plans for the Fed to change policy.”

Any further pressure on inflation “would suggest a higher rate profile for the Fed than otherwise,” he said.

According to minutes from its last meeting in July, Fed officials are forecasting more rate hikes this year. However, some investors are?betting on rate cuts?as soon as early next year.