Wall Street gains after Fed chief’s first public remarks since job report release

Wall Street traded higher on Tuesday after Federal Reserve chief Jerome Powell addressed the public for the first time since the upbeat January job report was released.

Powell participated in a question-and-answer session with the non-profit Economic Club of Washington, saying that the Fed might need to do more rate hikes than anticipated. However, analysts noted that Powell's statement was less hawkish than investors had expected.

Investors' relief was reflected in the market. The S&P 500 gained 1.29 percent or 52.92 points to close at 4,164. The tech-heavy NASDAQ closed at 12,113.79 after gaining 1.90 percent or 226.34 points. Meanwhile, the Dow Jones rose by 0.78 percent or 265.67 points to 34,156.69.

The three indexes opened lower earlier in the session due to anticipation of Powell's hawkish tone. CFRA Research chief investment strategist Sam Stovall said that investors at the time were "still trying to ascertain" how the last job report would affect the Fed's future direction.

"He (Powell) is expected to pretty much say what he did, that the market might continue to be underestimating what the Fed is going to be doing, even though he did say that they might be raising rates a couple more times."

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Sam Stovall, Chief Investment Strategist at CFRA Research

Last week, the Bureau of Labor Statistics reported an additional 517,000 jobs in nonfarm sectors last January, around triple what analysts had estimated. In the same month, the unemployment rate dropped to 3.4 percent, the lowest in 53 years.

Despite Powell's dovish rhetoric following the rate-setting meeting on February 1, investors had predicted that the upbeat labor market data would change the Fed's sentiment about its monetary policy.

Guy LeBas, head of fixed income strategist at Janney Montgomery Scott, described Powell's Q&A session in Washington as "meaningful" because the Fed chief maintained his stance that the central bank's effort had started to cool down inflation.

"Last week we had the Fed provide a pretty dovish hike," LeBad said. The new information was Friday's payrolls information. And Powell chose to not turn more aggressive in the face of a very strong payrolls report. He was given several opportunities to turn more hawkish and he did not."

In other parts of the world, stock markets also thrived. Some European stock markets broke their two-day losing streak. Europe's benchmark Stoxx 600 index gained 0.23 or 1.03 points, closing at 458.19. Meanwhile, the FTSE 100 jumped by 0.4 percent to 7,864.71 after strong earnings from oil company BP.

In Asia, Chinese blue-chip stock index CSI 300 rose by 0.2 percent. Hong Kong's Hang Seng also closed 0.4 percent higher.

The two-year U.S. Treasury bond yield, which typically moves according to interest rate expectations, traded sideways at 4.47 percent. The two-year yield rose to its highest point a month after the job report. Analysts said the flat yield movement showed a "less-ebullient mood" among bond investors.

Fed not to achieve inflation target in 2023

Powell also said during his appearance that inflation would significantly decline throughout this year and likely get to a spot where the Fed felt "comfortable" in 2024.

However, Powell did not provide clues about when the Fed would stop increasing interest rates. He maintained that the Fed needed to maintain its aggressive monetary policy to achieve its inflation target of two percent.

"We need to be patient," Powell said. "We think we're going to need to keep rates at a restrictive level for a period of time before that comes down."

Last week, the Fed increased the benchmark rate for the eighth time since the tightening cycle began, this time by 25 basis points. The recent increase put the target range between 4.5 percent and 4.75 percent.

Other Fed officials also shared a similar sentiment with Powell. President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, said January's strong job reports showed that the Fed's high-interest rates only had a limited effect on the economic slowdown. He added that more aggressive hikes could put a "ceiling" on inflation and allow the central bank's monetary policy to "work its way through the economy."