The fear that had increased over the last few days as investors awaited two days of Fed Chair Jerome Powell’s “Humphrey Hawkins” testimony to Congress that commenced Wednesday evaporated rapidly, with the markets jumping to fresh highs as Powell supported the argument for easing monetary policy.
In written testimony to the House Financial Services Committee, Powell claimed that business investments throughout the U.S. have languished “notably” recently as uncertainties over the economic outlook persist.
“Crosscurrents have reemerged,” Powell said. “Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
The S&P 500 shot above the key resistance level of 3000 on the news, but the major stock index tempered gains as Powell answered questions from lawmakers. In the briefing with lawmakers, Powell restated that current trade conditions and stagnant economic activity have dampened the U.S. economy’s outlook. He remarked, however, that the U.S. economy remains strong.
Gold prices also jumped on the remarks, trading 0.7% higher at $1,407.21 per ounce. The 2-year Treasury rate, meanwhile, fell to 1.86%.
“Powell’s prepared testimony struck a decidedly dovish cord with ‘uncertainties’ over trade and global growth since the June FOMC meeting characterized as having dimmed the outlook. By way of an update, the Chair just confirmed that things have gotten worse,” said Ian Lyngen, head of U.S. rates at BMO Capital Markets.
Some of the trepidation from investors prior to the meeting was a result of concerns that the Fed might not be as dovish as some investors had hoped. This came in part from last Friday’s positive jobs report, which might have reinforced some of the Fed hawks’ impressions that things are humming along in the economy. All of this was put to bed at during Powell’s testimony.
Powell in his testimony “fully endorsed the July rate cut and did absolutely nothing to pull the markets back from that expectation,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “There was little in the statement to imply what this means past the July meeting, but we can infer that any further softening in the data past July will likely mean more action from the Fed at subsequent meetings.”
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