Wall Street rallies as Powell hints at slowing rate hikes

NEW YORK (Reuters) – Wall Street extended its gains on Wednesday after Federal Reserve Chair Jerome Powell said that the central bank’s policy rate was “just below” neutral, hinting at a potential moderation in the pace of policy tightening.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., November 26, 2018. REUTERS/Brendan McDermid

The S&P 500 was up 1.9 percent, while the Dow and the Nasdaq each advanced more than 2 percent following Powell’s speech to the Economic Club of New York.

In his remarks, Powell said that while “there was a great deal to like” about U.S. prospects, “our gradual pace of raising interest rates has been an exercise in balancing risks.”

Earlier in the day, in its first-ever financial stability report, the Fed cautioned that trade tensions, Brexit, and troubled emerging markets could rock a U.S. financial system where asset prices are “elevated.”

This comes on the heels of President Donald Trump’s latest attack on the central bank, saying in an interview on Tuesday that the Fed “is way off-base with what they’re doing.”

“(Powell) gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.

“Powell saying we’re ‘close to neutral’ is a pretty good indication of what’s to come,” Pursche added.

The U.S. Commerce Department affirmed that U.S. GDP USGDPP=ECI grew in the third quarter at a 3.5-percent annual rate, but the goods trade deficit widened, consumer spending was revised lower and sales of new homes tumbled, suggesting clouds are gathering over what is now the second-longest economic expansion on record.

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