The Dow Jones Industrial Average soared 846.24 points, or 1.89%, to close at a record high of 45,631.74. The S&P 500 gained 1.5%, ending just below the all-time high it set last week, while the Nasdaq Composite climbed 1.9% to finish at 21,496.53.
Megacap technology stocks led the rally following Powell’s comments. Nvidia rose 1.7%, Meta Platforms added over 2%, while Alphabet and Amazon each gained more than 3%. Tesla shares surged nearly 6%.”We see Powell’s remarks as consistent with our expectation of a quarter-point cut to the Fed’s short-term rate at its September 16-17 meeting,” economists at Goldman Sachs wrote in a note. The Fed’s benchmark rate currently stands at 4.3%.
For months, Powell resisted pressure from President Donald Trump to cut interest rates and ignored Trump’s calls for his resignation. However, as the president has escalated his criticism of the Fed’s independence, Powell on Friday hinted that officials are now considering a rate cut.
Despite recent inflationary pressures, Powell acknowledged that “downside risks to employment are rising,” opening the door to a potential rate reduction in September.
By shifting focus toward labor market risks, Powell signaled the Fed may not wait for inflation to fall fully in line with its target before adjusting rates.Although inflation remains “somewhat elevated,” Powell said that “the balance of risks appears to be shifting,” during his speech at the Fed’s annual conference in Jackson Hole, Wyoming.
Separately, Powell announced a reversal of a five-year-old policy that could keep long-term interest rates slightly higher, adding another layer of complexity to the Fed’s outlook.
Still, Powell emphasised a cautious approach, saying the Fed will base its decisions on how both inflation and employment evolve.
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said. “This unusual situation suggests that downside risks to employment are rising. And as those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
The Fed has three remaining meetings this year, in September, late October, and December, but it’s unclear whether officials will opt for rate cuts at all of them.
Friday’s rally stood in sharp contrast to the week’s earlier market action. The major indexes had been under pressure due to weakness in megacap tech, dragging the averages lower for most of the week. But the latest surge helped investors recover much of those losses.
For the week, the Dow rose 1.5%, the S&P 500 added 0.3%, while the Nasdaq slipped 0.6%.
With agency inputs
