Wall St jumps as investors speculate Fed Chair Powell's speech indicates a rate hike slowdown

Many interpret the speech to mean an end to rate hikes – at least for now.

Investors speculate Powell’s words as indicating the Federal Reserve’s three-year rate hike may be coming to an end, although debate has sparked whether Powell’s speech was something to factor in at all.

While debate sparked, Mr Powell’s speech to the Economic Clun of New York on Wednesday did give investors optimism, after he said the central bank’s policy rate is ‘just below’ estimates, indicating a neutral outlook for the economy.

Some analysts predict Powell's change in tone could be in response to Trump’s comments on the Fed Chair on Tuesday, after Trump told media that he was unhappy with Powell.

IG Market Analyst, Kyle Rodda says Fed fund futures suggest traders have heard enough to factor an 80% chance of a Fed-hike next month.

“The shifting of expectations has been seen in the pricing for rate hikes in 2019. The Fed’s last dot-plots implied 3 hikes for next year – and markets got close to pricing the full three at stages only just over a month ago.”

While a December rate hike has been widely expected, Mr Powell’s comments have deterred some investors from pricing in the hike.

“Perhaps we saw last night, in the tradition of many-a Fed Chair gone before, the latest incarnation of a “Fed-put” – that is, this time around, a “Powell-put”, which will underwrite financial market strength at the first sign of true-trouble.” Mr Rodda said.

S&P 500 and The Dow Jones

Stocks and interest-rate futures jumped in response to Powell's speech. The S&P 500 and Dow posted gains not seen for eight months.

The Dow Jones Industrial Average rose 2.5% to 25,366.43, the S&P 500 gained 2.30 % to 2,743.78 and the Nasdaq Composite added 2.96% to 7,291.59.

Mr Rodda says some investors have more than the speech alone to go by.

“We are now seeing just the one, [rate-hike indication] and for some very dovish folk, even that’s too bullish.” Mr Rodda said.