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The Fed is already talking about cutting rates this year and the market reacts to Jerome Powell’s speech

The Fed is already talking about cutting rates this year and the market reacts to Jerome Powell’s speech

Jerome Powell, president of the United States Federal Reserve(Fed), expressed this Wednesday that the entity will take the decision to reduce interest rates with caution and reflectionwhich is expected to occur at some point this year, once the sustained decline in inflation is solidly confirmed.

Powell, addressing the House financial services committee, indicated that the committee seeks additional data that supports and generates greater confidence in the sustained reduction of inflation to 2%. He claimed to have some confidence in this inflationary process.

In his appearance before the press and on monetary policy decisions, Powell stressed that the rate would probably peak in this cycle and that, economic conditions permitting, it would be appropriate to begin reducing rates “sometime this year”. This message had already been conveyed in the regulator’s last press conference.

The market reaction

Aware of the importance of his words on stock markets, Powell maintained a cautious tone and reaffirmed the Fed’s conservative stance, which has kept rates unchanged since July 2023, placing them in the range of 5.25% to 5.5%, his highest level since 2001, after eleven increases made since March 2022 to contain inflation, which exceeded 9% in the summer of that year.

Powell insisted that the Fed’s Federal Open Market Committee (FOMC) will not reduce interest rates until it has gained greater confidence that inflation is sustainably headed toward the 2% target.

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Reuters

The Fed Chairman reviewed U.S. economic activity, highlighting solid expansion last year, with gross domestic product (GDP) growth of 3.1%, driven by robust consumer demand and improvements in business conditions. offer.

Consequently, Wall Street’s three main indices closed higher on Wednesday, as Powell’s speech reinforced expectations that the US central bank will reduce its benchmark interest rate this year.

Although the official avoided committing to a schedule for rate cuts, since progress in inflation is not guaranteed. Thus, the Dow Jones Industrial Average (.DJI) rose 76.32 points, or 0.2%, reaching 38,661.51; the S&P 500 (.SPX) gained 26.14 points, or 0.51%, reaching 5,104.79; and the Nasdaq Composite (.IXIC) added 91.96 points, or 0.58%, reaching 16,031.54.

Wall Street indexes had lost more than 1% on Tuesday, with weakness in megacap stocks and as investors anxiously awaited Powell’s comments.

Source: Ambito

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