Wall Street bounced in response to Federal Reserve Chair Jerome Powell signaling that the central bank could begin slowing the pace of interest rate hikes as soon as December.
The S&P 500 (NYSE: SPY) rallied and closed above its 200-day moving average for the first time since April after Powell's remarks at the Brookings Institution in Washington D.C. were released. The broad sector index was 3% higher on the day, while the Dow Jones Industrial Average (NYSE: DIA) and Nasdaq Composite (NASDAQ: QQQ) also climbed over 2% and 4%, respectively.
All sectors also ended Wednesday in the green, with the Technology Select Sector SPDR Fund (NYSE: XLK), the Communications Services Select Sector SPDR Fund (NYSE: XLC), and the Consumer Discretionary Select Sector SPDR Fund (NYSE: XLY) leading gains.
Market participants were cautiously trading ahead of Powell's speech earlier in the week as investors continue to look for direction amid ongoing concerns that the Fed's aggressive rate hiking campaign may trigger a recession. Powell's cautious language towards the central bank's next steps forward may have not bolstered stocks in the past, but this year as been full of rallies on better-than-feared news.
Powell noted that since the Fed has raised rates rapidly throughout the year, it would make sense for officials to begin to slow the rate of these increases. Powell suggested that the Fed is moving into a new phase of policy tightening in which policymakers will begin to judge how high rates need to raise.
"My colleagues and I do not want to overtighten because ... cutting rates is not something we want to do soon," Powell said. "That's why we're slowing down, and I'm going to try to find our way to what the right level is."
Still, Powell cautioned that despite "promising developments" in how the U.S. economy has responded to the central bank's aggressive rate-hiking campaign, "we have a long way to go in restoring price stability".
"It is likely that restoring price stability will require holding policy at a restrictive level for some time," Powell added. "We will stay the course until the job is done."
At the conclusion of their most recent policy meeting in November, Fed officials raise their benchmark rate by a 0.75 percentage point to a range between 3.75% and 4%. That range is up from near zero in early March. Powell speech, along with other recent Fedspeak, signals that the Fed may raise rates by a 0.5 percentage point at the end of their December 13-14 meeting.
Wall Street has already been betting on a 65% chance the Fed would decrease its interest rate hikes to a half percentage point in December, according to CME Group data. In response to Powell's remarks, that chance rose to 77%.