Jerome Powell Calms Markets
On Wednesday, the Dow Jones Industrial Average and the S&P 500 closed at record highs after the Federal Reserve boosted its outlook on economic growth and said it would keep interest rates near zero. The Federal Reserve forecasted the US economy would grow at a rate of 6.5% this year, the fastest in four decades. The speedy recovery can be attributed to rising vaccine distributions and roughly $2 trillion in new federal spending.
Additionally, Fed chairman Jerome Powell maintained that the Fed would not stop its bond purchases and would not hike interest rates through 2023, pushing back against speculation by investors that rate hikes were imminent. During his afternoon press conference, Powell said, “What I’m telling you is that the stance of monetary policy we have today, we believe is acceptable.”
It’s not all glitz and glamour, though — the Fed did say they expect inflation this year, although they anticipate it will be temporary. Inflation is now expected to hit 2.4% compared to the Fed’s earlier estimate last December of 1.8%, an increase that many economists have said could slow the economic recovery.
Powell will face rising pressure in the future as he sticks to the Fed’s pledge to let the economy continue to grow before raising rates. He also needs to reassure Wall Street that inflation in the short term is temporary and won’t lead to long-term inflation.
After the Fed’s comments, the 10-year Treasury yield fell lower, and stocks moved higher. The Nasdaq Composite reversed its losses, closing up 0.4%. And the Dow Jones Industrial Average ended the day up roughly 0.6%, closing above 33,000 for the first time.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.