With the latest bouts of volatility roiling the capital markets, investors were hanging on every word of Federal Reserve Chairman Jerome Powell’s speech at the Economic Club of New York on Wednesday and they apparently liked what they heard as the Dow Jones Industrial Average soared past 520 points as of 2:45 p.m. ET following Powell saying that rates are “just below neutral.”
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” said Powell.
Powell noted that the economy is “near max employment, price stability” and major asset class valuations are “not far in excess,” which could mean there may be more room to run for U.S. equities. Furthermore, Powell states that the economy is growing “well above most estimates” and that “there is a great deal to like about this outlook.”
The CME Group’s FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike for December. Powell’s latest comments come as various Fed members signaled dovish tones to various media outlets.
Related: Jim Cramer: Markets in ‘One of the Worst Times in a Long Time’ as Yields Rise, Stocks Fall
Federal Reserve Bank of New York President John Williams was keen to sticking with hiking rates–somewhat.
“We’ll be likely raising interest rates somewhat but it’s really in the context of a very strong economy,” Williams said at a community event in New York on Monday. “We’re not on a preset course. We’ll adjust how we do monetary policy to do our best to keep this economy going strong with low inflation.”
In an interview with the Wall Street Journal this month, Federal Reserve Bank of Philadelphia President Patrick Harker was outright convinced that a December rate hike is not the most optimal move given the latest rumblings in the markets.
“At this point, I’m not convinced a December rate move is the right move, but I need to watch the data over the next few weeks before determining whether it is prudent to boost the cost of borrowing again.”
Previous comments by Fed Vice Chairman Richard Clarida ran parallel to Powell’s view that the economy is still robust.
“U.S. economic fundamentals are robust, as indicated by strong growth in gross domestic product and a job market that has been surprising on the upside for nearly two years,” Clarida said.
CNBC “Mad Money” host Jim Cramer said Powell’s latest comments as a less hawkish stance from his previous view and that he’s pumping the brakes on an aggressive rate-hiking policy.
Powell sees the global slowdown and knows that it could hurt us. Powell is concerned and knows when he does one he has to wait– very big change in view.
— Jim Cramer (@jimcramer) November 28, 2018
For more trends in fixed income, visit the Rising Rates Channel.