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US stocks and government bonds rallied in response to Federal Reserve Chief Jay Powell, who raised expectations that the central bank will begin to slowly remove its stimulus in times of crisis later this year .
The blue-chip S&P 500 index rose 0.9% on Friday following a speech by Powell at a virtual Jackson Hole summit by central bankers earlier in the day, hitting a new high after falling moderate Thursday. The Nasdaq Composite rose 1.2%, also a record, while major European regional and national stock exchanges all finished higher.
Powell said the Fed hit the first of two targets it wanted to achieve, an average inflation of 2%, before reducing its economic support. The second goal is as many jobs as possible, he said there was “clear progress”.
However, Powell also warned against too hasty action in response to high inflation, noting that such a move could be “particularly bad” given that the world’s largest economy still struggles with the effects of the pandemic.
Powell’s speech was the center of market attention, said Roger Lee, head of UK equity strategy at wealth manager Investec. “There’s a reason we’re hanging on to this – the market is desperately looking for direction, confirmation from the Fed when the cut begins.”
U.S. government debt prices also rose on Friday, with Powell pointing out that efforts to scale back the bond buying program would be separate from potential future increases in U.S. interest rates.
The yield on the benchmark 10-year Treasury note fell slightly by around 0.05 percentage point to 1.3% while the two-year note, which is heavily influenced by the interest rate policy of the Fed, fell to 0.22% from 0.24%, in a sign that investors are lowering their rate hike expectations.
“I was very happy that he separated the rate hike from the rate cut announcement … It’s a much higher bar to hike rates,” said Kristina Hooper, chief strategist global markets at Invesco.
In Europe, the Stoxx 600 closed 0.4% higher, with the continent-wide benchmark on track for its seventh consecutive month in the dark. The Frankfurt Xetra Dax rose 0.4%, the London FTSE 100 by 0.3% and the Paris CAC 40 by 0.2%.
In Asia, Hong Kong’s Hang Seng Index closed flat while its tech sub-sector edged down 0.2%. Commodities rallied as global benchmark Brent crude rose 2.2% to $ 72.61 per barrel while US marker West Texas Intermediate rose 1.9% to $ 68.71 per barrel. Gold was trading up about 1.4 percent at $ 1,821 per troy ounce.