U.S. stock indexes jump during Fed chief's speech

Trading specialist Meric Greenbaum watches on the floor of the New York Stock Exchange as stock prices surge Wednesday on expectations of a slowing in interest rate increases.
Trading specialist Meric Greenbaum watches on the floor of the New York Stock Exchange as stock prices surge Wednesday on expectations of a slowing in interest rate increases.

Stocks surged Wednesday after investors took comments by Federal Reserve Chairman Jerome Powell to mean that the central bank could be closer than expected to ending its current push to lift interest rates.

The remark by Powell that caused the markets to jump amounted to three words in a long speech about the financial system's stability. In a speech to the Economic Club of New York, he said the Fed's benchmark interest rate was approaching a "neutral" level that would no longer provide stimulus to the economy. The rate is now in a range from 2 percent to 2.25 percent, which Powell described as "just below" most estimates of the neutral level.

That contrasted with a statement by Powell in October, after the last rate change, that the benchmark rate was still "a long way" from neutral. Some investors interpreted his description Wednesday as a sign that the Fed might not raise rates quite as high as it previously indicated.

But some analysts warned that markets were overreacting to Powell's remarks. The Fed is still expected to raise rates in December, and there was no clear sign that the policymakers would move more slowly than planned next year.

Stocks rose in morning trading and nearly tripled their gains as Powell spoke. Bond yields slipped and the dollar weakened as investors adjusted their expectations for how quickly interest rates might rise.

The S&P 500 index surged 61.61 points, or 2.3 percent, to 2,743.78, its biggest gain since March 26. The S&P 500 has gained 4.2 percent this week but would still need to rise another 6.8 percent to return to its record high from late September.

The Dow Jones industrial average jumped 617.70 points, or 2.5 percent, to 25,366.43. The Nasdaq composite rose 208.89 points, or 2.9 percent, to 7,291.59. The Russell 2000 index of smaller-company stocks gained 37.53 points, or 2.5 percent, to 1,530.38.

After an initial decline, bond prices turned higher, sending yields lower. The yield on the 10-year Treasury note fell to 3.06 percent from 3.07 percent earlier in the day. It stood at 3.05 percent late Tuesday. The yield on the two-year note steadied at 2.81 percent.

Investors have worried that the Fed's rate increases would dampen the economy, bringing a close to one of the longest bull markets in U.S. history.

President Donald Trump has repeatedly criticized the Fed, and Powell specifically, for raising interest rates too quickly. In an interview with The Washington Post on Tuesday, the president said the Fed was a "much bigger problem than China."

"I'm not being accommodated by the Fed," Trump said in the interview. "I'm not happy with the Fed. They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me."

Powell has insisted policymakers are not taking orders from Trump and would chart a course based on the health of the economy.

"Mr. Powell's own views might well be leaning to the dovish side, but he was not, in our view, signaling any impending change" in plans, said Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics

Fed officials had predicted in September that they would raise rates three times next year.

Powell and other Fed officials had previously sought to soften the impact of the October remarks by emphasizing that the exact level of the neutral rate was not important to the central bank's policy plans.

The chairman has said the Fed is trying to strike a balance between extending the current economic expansion and maintaining control over inflation.

"We will be paying very close attention to what incoming economic and financial data are telling us," Powell said Wednesday.

Some Fed officials, however, have said they want to pause at the neutral level to consider whether further increases are warranted. Others have said they want to raise rates past neutral, judging that the economy will need a little restraint.

Richard Clarida, the Fed's vice chairman, said Tuesday that deciding how high to go would require "judgment and humility."

In publicly berating the Fed over its policy, Trump is breaking sharply with recent administrations. Powell has emphasized, including in a recent speech, that the central bank is overseen by Congress, not the president.

The Fed likes to present itself as a technocratic institution that floats above the political fray. While there is a case for raising interest rates more slowly -- a view held by some policymakers and independent economists -- such a pause would expose the Fed to claims that it is acceding to Trump, some analysts say.

On Wall Street, customer-management software developer Salesforce surged 10.3 percent to $140.64 after its earnings and revenue were stronger than analysts expected. That helped pull technology companies higher. Software-maker Adobe rose 7.3 percent to $249.21. Apple jumped 3.8 percent to $180.94 and Microsoft rose 3.7 percent to $111.12.

Tiffany skidded 11.8 percent to $92.54 after it said foreign tourists, especially from China, didn't spend as much at its stores in its latest quarter. That contributed to disappointing sales for the company. Chinese economic growth has slowed since the government clamped down on bank lending last year as part of an effort to rein in surging debt. The U.S.-China trade dispute has also contributed to the slowdown.

Jam and packaged-food maker J.M. Smucker fell 7.2 percent to $101.28 after it reported a smaller profit and less revenue than analysts had expected. Smucker also lowered its forecasts for the full year.

Boeing recovered a sliver of its recent losses as investigators in Indonesia discussed their investigation into the crash of a Boeing 737 MAX 8. Indonesian authorities said they are still struggling to understand why the plane crashed.

Questions about the crash have pulled Boeing's stock lower. Despite a 4.9 percent gain Wednesday, to $333.50, it's still down 10 percent since Nov. 8, when federal regulators gave an emergency directive telling pilots how to handle incorrect data from a sensor that may have malfunctioned during the flight.

The dollar fell to 113.53 yen from 113.79 yen. The euro rose to $1.1376 from $1.1296.

Benchmark U.S. crude oil slipped 2.5 percent to $50.29 a barrel in New York. Brent crude, the standard for international oil prices, sank 2.4 percent to $58.76 a barrel in London.

Wholesale gasoline lost 1.6 percent to $1.40 a gallon. Heating oil fell 2.5 percent to $1.84 a gallon. Natural gas rocketed 10.6 percent to $14.72 per 1,000 cubic feet.

Information for this article was contributed by Binyamin Appelbaum of The New York Times and by Marley Jay of The Associated Press.

photo

AP/Mark Lennihan

Federal Reserve Board Chairman Jerome Powell speaks at the Economic Club of New York, Wednesday, Nov. 28, 2018, in New York.

A Section on 11/29/2018

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