Economy

Global stocks rally after speech by Fed's Powell, oil prices surge

Global stocks rally after speech by Fed's Powell, oil prices surge

Investors will especially want to hear whether Powell addresses the central question of whether any of those developments might lead the Fed to alter its plan to raise interest rates two more times this year and to keep raising them next year as well.

The Federal Reserve should stop raising interest rates now because the economy is showing no signs of inflation surging and is expected to slow next year after the effects of fiscal stimulus wear off, St. Louis Fed President James Bullard said Friday.

What's more, the RSI is trending north and could find acceptance above 50.00 (in bullish territory) on Monday. In June, most Fed officials projected the natural rate of unemployment was between 4.1% and 4.7%.

"We are seeing some of the more cyclical sectors like energy, materials, continuing to move higher on the expectation that the Fed is going to let the economy run a little hot", Zaccarelli said.

Markets are pricing in two more rate hikes this year, and one next year, less than the three rate hikes the Fed now forecasts for 2019.

Powell adds that while annual inflation has risen to near the Fed's 2 percent target rate, it doesn't seem likely to accelerate above that point.

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"I see the current path of gradually raising interest rates as the [Federal Open Market Committee's] approach to taking seriously both of these risks", he said. The Dow Jones industrial average closed up 133 points - about half a percentage point - and bond prices rose as well. Trump was once again scolded by the press for criticizing the Fed a second time.

On the economic front, US new orders for manufactured durable goods in July decreased 4.3 billion USA dollars or 1.7 percent to 246.9 billion USA dollars, worse than market consensus, said the Commerce Department on Friday.

Economists said Powell's remarks Friday echoed the message he has sent since succeeding Janet Yellen as Fed leader in February. In his view, that's why the Fed can continue with a gradual pace of rate hikes that began under Yellen.

The U.S. Dollar spiked lower on the news with the headlines reading that Trump's comments triggered the break.

"Treasuries have returned to the lower end of their recent (yield) ranges and I think that speaks to the heavy short positioning, suggesting that it's easier for the market to rally than it is to sell off", said Jonathan Cohn, an interest rate strategist at Credit Suisse in NY.

Kansas City Fed President Esther George, who in 2016 dissented several times in favor of higher rates, made a similar point, in three separate broadcast interviews ahead of the conference. Five of those rate hikes, including two this year, have occurred with Trump in the White House.