Stocks hit session highs after Fed Governor Lael Brainard, who some had expected to abandon her stance and open the door to higher rates, said the US central bank must be careful not to remove stimulus too quickly.
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Brainard’s speech followed comments by Boston Fed President Eric Rosengren, who said last week that the US economy could overheat if the central bank waited too long to raise interest rates, potentially spurring a global rout in equities.
Economic weakness “counsels prudence”, she said in the last public comments from the Fed until the central bank meets on September 20-21.
The futures market pointed to a negative open for USA stocks and markets in Europe tumbled as investors anxious about the possibility of an imminent US interest rate hike.
Gold steadied on Monday, recovering from earlier weakness after dovish comments from US Federal Reserve policymakers lowered expectations for an interest rate hike this month, and the US dollar fell.
The Dow Jones Industrial Average (NYSEARCA:DIA) climbed 240 points or 1.3%, partially offsetting Friday’s almost 400-point drop.
The dollar was almost flat against the yen and euro during Asia trade on Monday, with the U.S. currency lacking clear direction ahead of a speech by a key member of the U.S. Federal Reserve. The comments – and anxiety about what Brainard might say – sent stocks tumbling on Friday.
She said the United States labor market was not yet at full strength, which means “the case to tighten policy preemptively is less compelling.”She said the labor market might still tighten further without putting pressure on inflation”. More rate hikes were expected to follow early this year, but the Fed has held off.
Over the last 50 years, however, the S&P has done very well in the immediate aftermath of a bounce back Monday like we’re seeing today.
“I am satisfied at this point that conditions warrant that serious discussion”, he said.
Brainard also noted that annual inflation has been coming in well below the Fed’s two per cent target.
But other Fed officials are ready to talk about a rate hike.
Lockhart isn’t among the 10 voting members of the Fed’s interest-rate setting panel this year.
The benchmark U.S. Treasury yield was little changed after having risen to 1.697 percent, the highest since late June.
The local currency was little changed at 97.13 Australian cents from 97.09 cents yesterday and gained to 4.9083 Chinese yuan from 4.8857 yuan.
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John O’Hara, business development manager for Halliburton Co, describes a piece of equipment to members of Pay It Forward During The Downturn, a networking group for laid-off white collar oilfield workers, during a tour of a Halliburton facility in Spring, Texas, U.S., on Aug.18, 2016.
