Federal Reserve Tempers Tone on Rate Hikes!

Federal Reserve chair Jay Powell has tempered his tone on rate hikes.

In a speech before the Economic Club of New York on Wednesday, Powell said, “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.”

In October, Powell suggested the Fed was a “long way” from neutral. This remark was seen by many investors as triggering the stock market volatility we’ve seen over the last few weeks as it suggested the Fed could be more aggressive than markets were forecasting in raising interest rates.

Tweaking this language to say rates are “just below” neutral is what investors have latched onto on Wednesday as a sign Powell is tempering some hawkishness interpreted in his earlier remarks.

Following the release of Powell’s remarks, U.S. stocks were soaring with the Dow up more than 400 points and all three major U.S. indexes up more than 1% on the session. Bond yields were also dropping — and thus bond prices rising — following Powell’s comments.