"Possibly in December" Fed's Powell Mentions Speed Adjustment... New York Stock Market Rally

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), confirmed that the Federal Open Market Committee (FOMC) could reduce the size of the interest rate hike as early as the December regular meeting. However, he cautioned against premature expectations of a policy pivot, stating that rate hikes themselves will continue. Following Powell's remarks, which effectively confirmed the December big step (a 0.5 percentage point increase in the benchmark interest rate), the New York stock market surged across the board.

Powell said at the Brookings Institution in Washington D.C. that "the time to slow the pace of rate hikes could begin as early as December." He explained, "The Fed has raised rates quickly, and it takes time for these moves to affect the economy," adding, "It would be reasonable to slow the pace of rate hikes." This emphasized a 'slowing of the pace of hikes' from a giant step (a 0.75 percentage point increase) to a big step at the December FOMC. In this case, the U.S. benchmark interest rate would be 4.25?4.5%.

However, Powell reaffirmed his stance that "it is appropriate to continue raising rates," signaling ongoing tightening. He stressed, "More important than the pace right now is the question of how long to maintain restrictive levels of rates and how high to raise them." This aligns with his message at the November FOMC press conference, where he indicated that while the pace of hikes would slow, rates would be kept higher for a longer period. At that time, the market interpreted this as signaling the advent of a '5% benchmark interest rate era,' while leaving room for pace adjustment.

On the same day, Powell reiterated, "Although some progress has been made, the Fed still has a long way to go," and warned again that history strongly cautions against premature easing policies. He also hinted that the terminal rate could be higher than the dot plot presented in September, which showed a median rate of 4.6% for next year.

The market cheered Powell's remarks on slowing the pace. After a mixed start, the New York stock market closed with gains across the board. The Nasdaq index, which is sensitive to interest rates and tech-heavy, soared more than 4%. The Dow Jones Industrial Average rose 2.18%, and the S&P 500 increased by 3.09% to close the session. Among individual stocks, the rise of tech stocks such as the 'FANG' group (Facebook, Apple, Netflix, Google Alphabet) was particularly notable.

On the same day, U.S. Treasury yields in the New York bond market slid across the board. The 10-year yield dropped to 3.61%, down 13 basis points (1 bp = 0.01 percentage point) from the previous session after Powell's remarks were released. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in more than a 72% chance of a 0.5 percentage point rate hike in December, up from about 66% the previous day.

Investors are now focusing on key economic indicators in December. Attention is immediately drawn to the employment report to be released on the 2nd. Economists expect nonfarm payrolls in November to increase by 200,000, slowing from the previous month. Ahead of the December FOMC regular meeting, the November Consumer Price Index (CPI) will also be released on the 13th.