Stocks rally after Fed chair signals slowdown in rate hikes

Wall Street closed out a solid November with a broad market rally Wednesday after the head of the Federal Reserve said the central bank could soon begin easing up on its aggressive interest rate increases aimed at taming inflation.

Fed Chair Jerome Powell, speaking at the Brookings Institution, reaffirmed that the central bank could begin moderating its pace of rate hikes as soon as December, when its policymaking committee is due to hold its next meeting.

“We have a risk management balance to strike,” Mr. Powell said. “And we think that slowing down (on rate hikes) at this point is a good way to balance the risks.”

Stocks roared higher following Mr. Powell’s midafternoon remarks. The S&P 500 rose 3.1%, snapping a three-day losing streak. The Dow Jones Industrial Average gained 2.2% and the Nasdaq composite climbed 4.4%.

The major indexes ended November with their second straight month of gains, though they remain in the red for the year.

Mr. Powell’s comments sent Treasury yields sharply lower. The yield on the 10year Treasury dropped to 3.65% from 3.75% late Tuesday. The yield on the twoyear note, which tends to track market expectations of future Fed action, fell to 4.34%. It was trading at 4.48% late Tuesday and had been as high as 4.53% shortly before Mr. Powell’s speech.

“Perhaps all that the market was looking for today was confirmation that we’re going to have a smaller rate hike in December,” said Kristina Hooper, chief global market strategist at Invesco.

While citing some recent signs that inflation is cooling, Mr. Powell stressed that the Fed will push rates higher than previously expected and keep them there for an extended period to ensure inflation comes down sufficiently.

“History cautions strongly against prematurely loosening policy,” Mr. Powell said. “We will stay the course until the job is done.”

The path ahead, though, is far from certain.

“The only thing we know is that a smaller rate hike is likely in December,” Ms. Hooper said. “We have really very little in the way of visibility of when the pause is going to be.”

Major indexes have been unsteady all year as the economy and financial markets dealt with stubbornly hot inflation and the Fed’s attempt to cool high prices with aggressive interest rate increases.

Wall Street has been hoping that the Fed will slow the scale and pace of its interest rate hikes. It has raised its benchmark interest rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. The goal is to make borrowing more difficult and generally slow the economy in order to tame inflation.

Those increases have helped send mortgage rates sharply higher.