US FINANCIAL MARKETS: Stocks swing as Federal Reserve chair Jerome Powell signals more rate hikes

Stocks are swinging on Friday after the head of the Federal Reserve pushed back on Wall Street's hopes that it may soon let off the brakes for the economy.

The S and P 500 was 0.1 per cent lower in morning trading, but only after initially losing as much as 1 per cent, after Jerome Powell said that Fed will need to keep rates high enough to slow the economy ?for some time? in order to declare victory over the high inflation sweeping the country.

The Dow Jones Industrial Average was down 29 points or 0.1 per cent at 33,262, as of 10.15 am (Eastern time) and the Nasdaq composite was 0.2 pr cent.

Powell's comments echo those of several other Fed officials recently, who have been pushing back on Wall Street's speculation that the Fed may ease up on its hikes to interest rates, which help corral inflation but also hurt the economy and investment prices.

Powell acknowledged that the rate hikes will hurt the job market and many US households but also said that the pain would be worse if inflation were allowed to worsen and that ?we must keep at it until the job is done.

?He basically said there will be pain and that they won't stop and can't stop hiking until inflation moves a lot lower,? said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

?It was a mercifully short speech and to the point. Powell didn't really break new ground, which is good since Jackson Hole isn't a policy meeting.?
Expectations had built through the week that Powell would try to to bat down the talk about a ?pivot? by the Fed, which may explain the modest reaction in the market to Powell's speech.

Some investors had even been speculating the Fed could cut interest rates later in 2023, as pressures on the economy mount and the nation's high inflation hopefully recedes.

The Fed could start thinking about a pause in rate hikes, potentially for the end of the year,? Thomas Costerg of Pictet said in a report. ?However, it is still too early to talk about rate cuts.

A report on Friday morning showed that the Fed's preferred gauge of inflation decelerated last month and wasn't as bad as many economists expected. It's an encouraging signal, which may embolden more of Wall Street to say that the worst of inflation has already passed or will soon.

Other data showed that incomes for Americans rose less last month than expected, while consumer spending growth slowed.

Following the reports and Powell's comments, the yield on the 10-year Treasury rose to 3.04 per cent. The reports helped pull the yield of the 10-year Treasury edged up to 3.04 per cent from its 3.03 per cent level from late Thursday.

The two-year Treasury yield, which more closely tracks expectations for the Fed's actions, rose more to 3.43 per cent from 3.37 per cent.

The Fed has already hiked its key overnight interest rate four times this year in hopes of slowing the worst inflation in decades, with most of the increases by more than the typical margin.

The hikes have already hurt the housing industry, where more expensive mortgage rates have slowed activity. But the job market remains strong, helping to prop up the economy.

In the stock market, shares of Ulta Beauty rose 3.2 per cent after the retailer reported stronger profit for the latest quarter than expected.

Perhaps more importantly, it raised its forecast for revenue and earnings for the full fiscal year. Other retailers have been cutting their forecasts as high inflation squeezes their customers, particularly lower-income ones.