All Three Major New York Stock Indices Rise Over 1% on Powell's Remarks Fueling Rate Cut Hopes

Dow Hits All-Time High, Nasdaq Rebounds After Four Sessions
US Treasury Yields Fall, 10-Year at 4.25%
"83% Chance of 0.25% Rate Cut in September"

After Jerome Powell, Chairman of the US Federal Reserve (Fed), made remarks leaving room for a potential interest rate cut, all three major indices on the New York Stock Exchange surged significantly on August 22 (local time).

An image of Jerome Powell, Chairman of the Federal Reserve (Fed), appears on the screen of the New York Stock Exchange (NYSE) in the United States. Photo by Yonhap News

On this day, the Dow Jones Industrial Average closed at 45,631.74, up 846.24 points (1.89%) from the previous session. The Standard & Poor's (S&P) 500 index rose 96.74 points (1.52%) to 6,466.91, and the tech-heavy Nasdaq Composite finished at 21,496.54, up 396.22 points (1.88%) from the previous session.

Notably, the Dow set a new all-time high, surpassing the previous record from December last year. The S&P 500 rebounded after six sessions, coming close to its all-time high of 6,468.54 recorded on August 14, and the Nasdaq returned to an upward trend after four sessions.

Both the Dow and Nasdaq indices were up more than 2% in the morning but pared some of their gains in the afternoon. Most major S&P 500 stocks closed higher, with large-cap tech stocks that had recently declined showing particularly strong rebounds.

Nvidia, the largest company by market capitalization, rose 1.72%, Google Alphabet increased by 3.04%, and Amazon climbed 3.10%. Meta gained 2.12%, and Apple was up 1.27%. Tesla soared 6.22%, while AI leader Palantir also rose 1.64%.

The market had been anticipating a rate cut, but expectations shifted due to several factors: the impact of tariffs beginning to be reflected in the real economy, signs of rising inflation, and relatively robust employment indicators, all of which suggested that a Fed rate cut could be challenging.

However, the mood changed after Powell stated in his keynote speech at the 'Jackson Hole Symposium' that "with policy in a restrictive stance, the balance of our baseline outlook and evolving risks could justify an adjustment to our policy stance."

Powell noted that the balance of risks between the Fed's dual mandate of maximum employment and price stability "appears to be shifting." He pointed out that while the labor market seems stable, it is an "unusual balance" resulting from a clear slowdown in both labor supply and demand. He added that this balance "is leading to an exceptional situation," increasing the risk of a sharper-than-expected deterioration in the labor market. "If such risks materialize, they could manifest very quickly as a surge in layoffs and a rise in the unemployment rate," he said.

Based on this perspective, Powell explained that there could be changes to the Fed's future rate policy. He also noted that the Fed's benchmark interest rate is 1 percentage point lower than a year ago, and unemployment remains low, saying that these conditions "allow us to proceed cautiously as we consider a policy shift."

The market interpreted Powell's remarks as signaling the possibility of a rate cut. Major outlets such as The Wall Street Journal (WSJ) also reported that "Powell signaled the possibility of a rate cut, emphasizing concerns about the labor market."

The yield on the 10-year US Treasury note fell from 4.33% the previous day to 4.25%, while the yield on the 2-year Treasury note, which is sensitive to monetary policy, dropped 0.1 percentage point to 3.69%, indicating movement in the bond market as well.