Stocks soar as US pulls back from rate hike: Fed boss says he’s in no rush to end emergency stimulus
Stock markets received a boost yesterday as the head of the US central bank said he was in no rush to roll back the country’s massive economic stimulus.
Federal Reserve chairman Jay Powell said the world’s largest economy had reached a point where it no longer needed so much support.
However, he added that there was “a lot of ground to cover” before the US reached full employment, meaning rate hikes are still a long way off.
Employment target: Federal Reserve chairman Jay Powell said the world’s largest economy had reached a point where it no longer needed so much support
Traders and investors around the world have been watching Powell’s comments closely, as the ups and downs of the US economy have far-reaching implications for other countries as well.
When central banks start raising interest rates, it generally weighs on stock markets — investors don’t need to pile up as much money in stocks to make returns, and debt-laden companies will have to spend more to pay their interest.
But the FTSE 100 climbed 0.32 percent to 7148.01 points, while Germany’s Dax rose 0.37 percent and France’s CAC – 0.24 percent.
During early trading in the US, the S&P 500 rose 0.94 percent and the Dow Jones 0.74 percent.
In a highly anticipated speech at the Fed’s annual summit in Jackson Hole, Wyoming, Powell gave his strongest indication yet that the central bank would begin winding down its massive pandemic stimulus program by the end of the year.
It had bought $120 billion worth of bonds every month since the start of the pandemic, in an attempt to inject money into the economy when production fell short last year.
But Powell now thinks these amounts can be reduced as the economy has made “significant further progress” towards meeting the Fed’s long-term inflation target of 2 percent.
In fact, US inflation hit 5.4 percent in July, after slumping during the worst of the pandemic, although Fed officials believe most of this is only temporary as pandemic-related deficits make their way.
Powell said, “At the FOMC [Federal Open Market Committee] At the recent meeting in July, I, like most participants, felt that if the economy developed broadly as expected, it may be appropriate to slow the pace of asset purchases this year.
“The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant.”
But he added that this didn’t necessarily mean that rate hikes were on the horizon, as the Fed still believes companies need some help hiring more workers.
The 68-year-old’s measured approach helped calm traders who feared the central bank would take tougher action to tame inflation.
Michael Hewson, chief market analyst at CMC Markets, said: “The reinforcement of the message that tapering is not tightening, and merely a reflection of the improvement in the economy, has reassured markets that the central bank will not rush into housing removals.”