Tuesday 22 June 2021 10:15 pm

Wall Street cheers US Fed chair Jay Powell's Congress appearance

Wall Street rebounded tonight as Federal Reserve chairman Jerome Powell vowed not to raise rates too quickly, as the dollar and oil gave up earlier gains.

Led by the tech-heavy Nasdaq, Wall Street closed higher, bouncing back from a sell-off set off last week by a Fed policy update that suggested officials believed rates would rise more quickly to counter rising inflation.

The Nasdaq closed at another record high, as top-shelf tech companies resumed their growth trajectories.

The Dow Jones Industrial Average rose 0.2 per cent after Powell started his testimony and the S&P 500 gained 0.51 per cent to 4,246.44 and the Nasdaq Composite gained 0.79 per cent, to 14,253.27.

Powell channelled central-banker-turnen Italian leader Mario Draghi today, saying he’d do “everything we can” to support the recovery of the world’s largest economy.

Remarks from Powell ahead of his congressional appearance predicted a dovish tone. The Fed “will do everything we can to support the economy for as long as it takes to complete the recovery”, he wrote.

Testifying before Congress, Powell vowed that the Fed will not raise rates out of fear of potential rising inflation, and instead will prioritize a “broad and inclusive” recovery of the job market. He said recent price increases do not suggest higher rates are needed, and instead can be attributed to categories directly impacted by economic reopening.

As ECB boss Draghi famously in 2012 said the central bank would do “ready to do whatever it takes to preserve the euro” as the single currency faced trouble following as the bloc emerged from the Global Financial Crisis.

Today, Powell’s tone changed from a more hawkish note last week when the central banker brought forward by a year the timeline for the the US Fed to start raising interest rates from their historic lows.

Powell reiterated that recent high inflation was expected to prove temporary.

Global markets today were fairly muted ahead of Powell’s appearance.

Wall Street was in positive territory, with the Dow Jones up 0.04 per cent, the S&P 500 up 0.34 per cent and the tech-heavy Nasdaq index up 0.49 per cent.

In the UK, the benchmark FTSE 100 index climbed 0.5 per cent, with British Land and Land Securities being the top gainers.

Spot gold fell 0.3 per cent to $1,777.91 per ounce, while US gold futures for August settled down 0.3 per cent at $1,777.40.

The US central bank may be in a position to start reducing its extraordinary support of the US economy by late this year or early next year, according to San Francisco Federal Reserve President Mary Daly.

“I am bullish on the recovery,” Daly told reporters ahead of Powell’s appearance.

“As the cycle evolves, investors will increasingly divert their attention toward the potential party spoilers. A chief concern is inflation,” wrote Tony DeSpirito, portfolio manager of Blackrock’s Equity Dividend Fund in a client note.

“We expect fears of inflation will be enough to stoke volatility in stocks, even amid Fed assurances of continued accommodation.”

“After the FOMC took the wind out of the reflation trade at the end of last week, that’s started to reverse over the last two days. It seems last week’s price action went too far,” said Stephanie Roth, senior markets economist for J.P. Morgan Private Bank.

Powell’s remarks pushed yields on benchmark 10-year Treasuries lower, dipping to yield 1.4649 per cent after clearing 1.5 per cent earlier in the day.