Stocks rise as Powell’s comments reassures traders

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U.S. stocks rose after Federal Reserve Chair Jerome Powell reiterated his commitment to curb inflation and acknowledged the risk of recession, as some traders now expect the central bank to closely monitor the impact of its rate hikes on the economy.

The S&P 500 and the tech-heavy Nasdaq 100 rose. Treasury yields declined with the 10-year yield hovering around 3.14%.

The dollar fell after earlier gains while other safe haven assets such as gold climbed.

Testifying in the Senate Wednesday, Powell made no reference to the size of future hikes, but tacitly admitted that the Fed has failed to get its job done and said that it would be difficult to engineer a soft landing.

Still, some investors found reassurance in Powell’s comments as a signal that the Fed will factor in economic fundamentals and the probability of a recession as it moves to curtail inflation.

“He has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data suggesting the Fed will not be exclusively on autopilot with tightening,” said Joe Gilbert, portfolio manager for Integrity Asset Management.

Others expect more uncertainty on the horizon as investors parse Powell’s recent comments.

Former New York Fed President Bill Dudley also said in a Bloomberg Opinion column Wednesday that a recession is “inevitable” within the next 12 to 18 months.

He sees a mild, not deep, recession.

“No one’s going to want to come in and want to buy a market, put anything significant into the market while you’re getting this all-over-the-place volatility,” Shawn Cruz, head trading strategist at TD Ameritrade, said in an interview at Bloomberg’s New York headquarters.

The market continues to be skeptical about the outlook for risk assets.

Deutsche Bank’s Chief Executive Officer Christian Sewing joined a growing chorus of executives and policymakers who warn that the global economy may be headed for a recession as central banks step up efforts to curb inflation.

Bitcoin briefly dropped below its $20,000 key level as investors remain concerned about a global recession. Powell said, on Wednesday, that there are no significant macro effects so far from the crypto decline.

He also said that Congress should clarify who has the authority to regulate it.

President Joe Biden plans to call on Congress to enact a pause in gasoline taxes to cool soaring pump prices and alleviate the pressure on consumers.

In Europe, stocks fell for the first day this week as miners and energy tumbled with commodity prices.

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