Investors bid up markets Tuesday amid news that Fed Chief Jerome Powell believes the U.S. economy still has a “long way” to go.
In this crazy, upside down investing world in which we live…bad is good and good is bad. In other words, if markets believe the Fed is concerned enough to continue doing all it can to increase liquidity and keep the money spigot open, well then, markets are happy.
And today, markets were happy.
Powell’s Economic Concerns Equals Gains on Wall Street
In day one of his two day testimony before Congress on Tuesday, Powell told the Senate Banking Committee that, “the economy is a long way from our employment and inflation goals.”
Those were the magic words Wall Street wanted to hear. Immediately, the tech heavy Nasdaq reversed course. After trading down as much as 4% earlier in the session (and threatening to fall below its 50-day moving average) the Nasdaqit rallied back, closing down just 0.50% on the day.
The news also enabled the Dow to close in positive territory, up 0.05% after having been down 362 points earlier in the session. The S&P also closed higher.
Investors are hopeful the Fed will continue its accommodative low interest rate policy for the foreseeable future. Recent evidence of inflation have suggested the Fed might need to pull back, however Powell put those concerns to rest today saying,
“Economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.”
Powell also downplayed concerns put forward by the former Treasury Secretary under Bill Clinton and former head of the National Economic Council under Barack Obama, Larry Summers. Summers had recently cautioned that too much stimulus could result in inflation. Nonetheless, Powell said, “I really do not expect we’ll be in a situation where inflation rises to troublesome levels at this time.”
And thus, the market rally gets to live another day.