The Dow executed a sudden recovery on Wednesday after Federal Reserve Chair Jerome Powell appeared to signal that the US central bank will capitulate to Wall Street’s rabid desire – and President Trump’s frequent demands – for an interest rate cut.
The US stock market sprang higher at the opening bell and continued to rally from there. By 9:55 am ET, the Dow Jones Industrial Average had gained 193.37 points or 0.72%; the DJIA last traded at 26,976.86.
The S&P 500 surged 22.06 points or 0.74%, piercing the 3,000 mark for the first time to settle at 3,001.35.
The Nasdaq led the pack with a 82.64 point or 1.02% leap to 8,224.24.
Futures tracking all of Wall Street’s major indices had traded lower before the bell, only to shoot higher at 8:30 am ET after the Federal Reserve published Chairman Jerome Powell’s prepared testimony that he will deliver later today on Capitol Hill.
Powell will tell the House Financial Services Committee that the Fed will “act as appropriate to sustain the expansion” in the face of economic “crosscurrents” that have “re-emerged, creating greater uncertainty.”
His testimony specifically cited risks associated with trade conflicts (read: the US-China trade war) and lagging growth indicators in the global economy.
“These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data,” Powell will testify.
After pricing in multiple rate cuts for 2019, Wall Street suffered a chilly weekend following the release of better-than-expected jobs data. The Dow traded lower for three straight sessions on fears that the apparently-healthy US economy would embolden the Fed to retain its current neutral posture rather than dive headlong into dovish territory.
Powell’s prepared testimony assuaged those fears, though it appears that the Fed will remain cagey on when it intends to cut rates. According to CME’s FedWatch Tool, the market is 100% certain that the Fed will announce the first cut at its July 31 FOMC policy meeting.
Still, Wall Street expects Fed chair’s congressional testimony to catalyze another messy clash with President Trump, who has made no secret of his disdain for the Powell-run central bank.
Powell will almost certainly face questions about Fed independence, given that the bank has relatively quickly – if begrudgingly – shifted its stance to align with Trump’s demands for reduced interest rates.
Powell must defend the bank’s rapid shift from a December 2018 rate hike to an apparent rate reduction less than one year later. He must also justify that shift based on economic fundamentals, not political pressures. And he must do this all without admitting that the Fed misread the economy when it hiked rates last year.
One analyst compared Powell’s unenviable task to “walking a tightrope over Niagara Falls .”