Federal Reserve Chair Jerome Powell's unexpectedly hawkish remarks on Thursday sent markets into a tailspin. Major U.S. equity indices closed in the red, and the dollar soared for a fifth consecutive session.
In a speech to Dallas business leaders, Powell highlighted the remarkable strength of the U.S. economy, indicating that there's no need for the Fed to “be in a hurry to lower rates.”
He reiterated the central bank's commitment to reaching its 2% inflation target, stressing the need for careful decision-making as inflation remains above desired levels.
He highlighted productivity gains, which he said have “grown faster over the past five years than at any point in the two decades preceding the pandemic,” positioning the U.S. economy as “the best-performing among major economies.”
Addressing the October producer price index (PPI) uptick, Powell labeled it “more than an upward bump” but maintained confidence in the trajectory toward the 2% inflation goal.
Markets Reassess Interest Rate Path: Traders Are Less Confident On A December Cut
Powell’s comments impacted the interest-rate market, with fed futures now reflecting a reduced likelihood of a 25-basis-point cut in December.
The CME FedWatch tool shows the odds of such a move dropped to 58%, sharply down from around 80% earlier in the day.
The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, closed down 0.6%, fully erasing gains from last week’s rate cut. Energy was the only sector in positive territory, rising 0.4%, while industrials and health care led declines, each down 0.7%.
Top performers in the S&P 500 included Tapestry Inc. TPR, Wynn Resorts Ltd. WYNN, and First Solar Inc. FSLR, which rose 12.8%, 8.7%, and 7.2%, respectively. Among the laggards were Leidos Holdings Inc. LDOS and Super Micro Computer Inc. SMCI, down 13.6% and 11.4%, respectively.
Tech stocks, as tracked by the Invesco QQQ Trust QQQ, declined 0.7%, marking a fourth consecutive loss. Blue chips followed by the SPDR Dow Jones Industrial Average ETF DIA slipped 0.5%, while small caps in the iShares Russell 2000 ETF IWM underperformed, falling 1.3%.
The dollar continued to attract liquidity, with the Invesco DB USD Index Bullish Fund ETF UUP logging a fifth consecutive gain, reaching levels last seen in late October 2023.
Treasury yields also rose, with the 10-year yield closing at 4.46%. Gold, tracked by the SPDR Gold Trust GLD, marked its fifth straight loss.
In crypto markets, Bitcoin BTC/USD was 1.7% lower in the past 24 hours to $88,013 at 5:21 p.m. ET, on track for its worst day in November.
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