[Asia Economy New York=Special Correspondent Joselgina] After Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted that the rate hike increments might be reduced starting December, the New York stock market rallied. Meanwhile, Treasury yields declined.
In the late afternoon session at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 383 points (1.13%) from the previous close to around 34,235. The large-cap-focused S&P 500 index increased by 75 points (1.90%) to 4,032, and the tech-heavy Nasdaq index climbed 325 points (2.95%) to 11,307.
Chairman Powell stated at the Brookings Institution in Washington DC that "the time to slow the pace of rate hikes could be as soon as the December meeting." He explained, "The Fed has raised rates quickly, and it takes time for these moves to impact the economy," adding, "It would be reasonable to slow the pace of rate increases." This reinforced market expectations of a slowdown from the unusual four consecutive giant steps (0.75 percentage point hikes) to a big step (0.5 percentage point hike) in December.
As a result, the market rallied in response to the anticipated slowdown. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently prices in over a 72% chance of a 0.5 percentage point hike in December, up from 66% the previous day.
Jeffrey Roach of LPL Financial said, "Most of Powell's remarks were dovish and predictable," forecasting that "the market will show strength in the near term." However, Roberto Vagnato of Immobiliare Quadrone Srl criticized it as a "nonsensical rally." He pointed out, "Powell said the pace would slow, but also indicated rates would be higher than previously expected. The market only wants to hear the first part of Powell's remarks."
On the same day, Powell reaffirmed his support for tightening, stating that "despite some progress, there is still a long way to go to achieve price stability," and that restrictive levels must be maintained. He emphasized, "The Fed still has a way to go," and "history strongly warns against premature easing policies."
Treasury yields showed a downward trend. In the New York bond market, the yield on the 10-year U.S. Treasury slipped to around 3.69% after Powell's remarks were released. The 2-year yield, which is sensitive to monetary policy, fell to about 4.40%.
Meanwhile, prior to Powell's comments, labor market data confirmed that the Fed's high-intensity tightening is gradually cooling private employment. According to the ADP National Employment Report, private sector employment in U.S. companies increased by 127,000 in November, roughly half the 239,000 increase in October. This is the lowest level since January last year and well below the expert forecast of 200,000.
On the same day, the U.S. Department of Labor's Job Openings and Labor Turnover Survey (JOLTS) showed that job openings last month were 10.3 million, down 353,000 from the previous month and 760,000 fewer than the same period last year.
Investors are now focusing on the employment report to be released on December 2. This report, closely watched by the Fed, is considered a more accurate indicator of overall U.S. employment as it combines both private and public sectors.
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