Stocks rose on Friday heading for a winning week as Federal Reserve Chairman Jerome Powell prepared the markets for the central bank to pull back on some of its monetary stimulus, saying it’s likely to start tapering its $120 billion in monthly bond purchases this year.
The Dow Jones Industrial Average gained 242.68 points, or 0.6%, to 35,455.80. The S&P 500 rose 0.8% to hit a new high and closed at 4,509.37. The Nasdaq Composite added 1.2%, also hitting a new record during the session, closing at 15,129.50.
The 10-year Treasury yield, which ran up this week into the Powell speech, eased slightly after the Fed chief’s remarks as he made clear that interest rate hikes would not immediately follow after tapering was over.
Powell also said inflation is solidly around the central bank’s 2% target rate, one of the goals of the Fed’s dual mandate. It has “much ground to cover” to reach its other goal of maximum employment, however, though there has “been clear progress” toward it, Powell added. The Fed has used the term “substantial further progress” as a benchmark for when it will start tightening policy.
Based on statements from other central bank officials, a tapering announcement could come as soon as the Fed’s Sept. 21-22 meeting.
The financial markets’ reaction Friday is a sign that the central bank has successfully prepped investors so far for a removal of its $120 billion a month in bond buying and may avoid a “taper tantrum” like the one that rocked markets temporarily at the end of 2013. Markets seem relieved the Fed isn’t planning to raise rates soon, said Michael Arone, chief investment strategist for the US SPDR Business at State Street Global Advisors.
“He successfully threaded the needle in communicating that tapering will likely begin this year, while reinforcing the notion that tapering does not mean tightening,” Hodge said. “We believe that barring further setbacks from the delta variant, that September will likely produce a blowout jobs number and set the table for the official tapering announcement at the September FOMC meeting.” You can read more here.
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