U.S. stock markets this morning are on edge ahead of Federal Reserve Chairman Jerome Powell's speech before the Economic Club of Washington. Markets are eagerly awaiting clues about the future of interest rates in light of last Friday's jobs report, which far exceeded expectations. Last week’s rate hike announcement moved the Fed’s base policy rate to between 4.5 and 4.75 percent, and markets are now pricing in 100% odds that the Fed will hike a quarter-point on March 22 and 76% odds that the Fed will hike another quarter-point on May 3. This would bring the federal funds rate to a 5%-5.25% range, which December Fed projections indicated would be the likely peak of the cycle.
On Tuesday, David Rubenstein, Chairman of the Economic Club of Washington, D.C., was spoken to by Powell. He said that the US labor market remains “extraordinarily strong” and that the central bank has more work to do to bring down inflation. Powell commented on the January jobs report, which revealed a notable 517,000 jobs were added to the US economy, saying, “We didn’t anticipate it to be this robust.” This demonstrates why we believe this will be a lengthy endeavor.
The process of getting inflation down has begun in the goods sector, which is about a quarter of the economy, Powell said. However, the Fed chair noted that price gains within the services sector remain high and the disinflationary process has a long way to go. Powell said that the Fed needs to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy.
Minneapolis Fed President Neel Kashkari also expressed his opinion that the strong jobs report shows that the Fed needs to keep raising interest rates. He said that rates need to climb to around 5.4 percent.
Elsewhere, Chinese internet giant Baidu (BIDU) skyrocketed after unveiling plans to launch its own AI chatbot, while Oak Street Health (OSH) surged more than +30% in pre-market trading after the Wall Street Journal reported that the company is close to an agreement to be acquired by CVS Health for about $10.5 billion. Activision Blizzard (ATVI) rose over 5% after earnings, while Pinterest's (PINS) stock fell 3.
0. “Markets Today: Stocks Slightly Higher Ahead of Fed Chair Powell's Speech” Barchart, 7 Feb. 2023, https://www.barchart.com/story/news/13975845/markets-today-stocks-slightly-higher-ahead-of-fed-chair-powells-speech
1. “Stock Market News Today: Indices Turn Volatile after Powell Speech” TipRanks, 7 Feb. 2023, https://www.tipranks.com/news/stock-market-news-today-futures-up-ahead-of-powell-speech
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