Stocks and bonds rose on Friday, as investors cheered rising hopes that the Federal Reserve would soon begin to cut interest rates after comments from the central bank’s chief.
The S&P 500 had already nudged 0.5 percent higher before Jerome H. Powell, the chair of the Federal Reserve, delivered his hotly anticipated speech in Jackson, Wyo. Mr. Powell cautioned in his speech that emerging weakness in the labor market could warrant a cut to interest rates soon.
The S&P 500 rose sharply to a gain of 1.6 percent for the day. The tech-heavy Nasdaq Composite, with lots of high-growth companies sensitive to changes in interest rates, rose 2 percent, while the Russell 2000 index of smaller companies that are closely tied to the outlook for the broader economy rose over 3 percent.
Investors’ expectations of lower interest rates were reflected in lower government bond yields. The two-year Treasury yield, which moves inversely to its price, fell 0.1 percentage points to 3.69 percent, while bets on the Fed cutting interest rates at its next meeting, in September, rose.
Mr. Powell, along with a majority of the Federal Reserve’s board, remain concerned about price pressures exerted by President Trump’s new tariffs and that lower interest rates could further stoke inflation.
But sharp revisions to the number of jobs added to the economy in recent months — data that prompted the president to fire the head of the Bureau of Labor Statistics, the agency that produces the jobs report — have tilted concerns back toward a potential economic downturn.
“The balance of risks,” Mr. Powell said, “appears to be shifting.”
Mr. Powell didn’t commit to cutting interest rates when the central bank’s board, which sets monetary policy, meets in September. Investors, nonetheless, now expect that the Fed will cut interest rates by a quarter of a percentage point next month, based on bets in interest rate futures markets.
“Chair Powell acknowledged that shocks to both labor supply and demand pose real downside risks — especially given recent soft jobs data,” said Lauren Goodwin, an economist at New York Life Investments. “This suggests the Fed is becoming more attuned to labor market fragility and may be quicker to act in response.”
Economists at Deutsche Bank adjusted their forecast for interest rates on Friday afternoon, after Mr. Powell spoke, and now expect the Fed to cut rates by 0.25 percentage points in September.
“We have adjusted our Fed call to reflect Powell’s signals,” the economists wrote.
The gains in the stock market came at the end of a week of steadily falling prices, as investors have looked to cut exposure to some of the most highly valued tech stocks that have driven the recent market rally. The S&P 500 was on course to end the week slightly higher after Friday’s rise.
Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders.
The post Stocks and Bonds Rise After Powell Suggests Rate Cuts Could Be Imminent appeared first on New York Times.
