Powell Rate Comments Push ETFs Toward Records
Stock and bond ETFs surged after Fed Chair Jerome Powell confirmed that the U.S. central bank was ready to cut interest rates in his widely anticipated speech in Jackson Hole, Wyoming.
“The time has come for policy to adjust,” Powell said at the Economic Symposium hosted by the Federal Reserve Bank of Kansas City. He said he was increasingly confident that inflation “is on a sustainable path back to 2%.”
The SPDR S&P 500 ETF Trust (SPY) was up by around 0.5% ahead of the speech, but extended its gains to as much as 1.2% after Powell’s comments came out.
The Invesco QQQ Trust (QQQ) went from a gain of 0.8% to as much as 1.6%.
Meanwhile, the yield on the benchmark 10-year Treasury bond dropped from around 3.85% to less than 3.79%, while the yield on the 30-year fell from 4.12% to 4.08%.
The highly-popular iShares 20+ Year Treasury Bond ETF (TLT) jumped as much as 0.9% midday Friday (bond prices move inversely to interest rates).
Interest Rate Comments in Powell Speech
In his speech, Powell assured listeners that rate cuts were coming without signaling anything about how large they might be.
“The direction of travel is clear,” he said, while “the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Investors remain split on whether the Fed will slash rates by 25 basis points or 50 basis points at its September 18 meeting, with fed funds futures currently putting a 68% probability on the former and a 32% probability on the latter.
Like Powell said, incoming data—and particularly, August’s labor market data which comes out on September 6—will play a role in determining the how much the Fed cuts rate by.
Still, even though he didn’t provide any clarity on September’s rate cut, there was a lot for investors to take comfort from in Powell’s speech.
The Fed Chair noted that the slowdown in the jobs market was “unmistakable” and that he and his colleagues did not “seek or welcome further cooling in labor market conditions.”
The comments could help assuage some of the worries that the Fed was behind the curve or that it wasn’t paying enough attention to the slowing of nonfarm payrolls growth and the uptick in the unemployment rate.
At today’s highs, SPY was trading a mere 0.3% below its record closing high from July, nearing erasing all of the losses from the aggressive sell-off of a few weeks ago.