Traders work on the floor at the New York Stock Exchange in New York, Thursday, Jan. 2, 2025. (AP Photo/Seth Wenig)
NEW YORK, United States — US stocks rallied Friday as US Federal Reserve chief Jerome Powell left the door open to cutting interest rates. This also sent the dollar dropping against the euro and other major currencies.
Investors had been eagerly waiting for Powell’s speech all week. They are hoping to hear hints that the Fed would cut rates at its next meeting in September to spur economic growth.
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New York’s three main indexes surged following his remarks, rebounding after a tech sell-off this week.
European stock markets also got a bump in afternoon deals, though the gains were limited by the impact of President Donald Trump’s tariffs on the German economy. This shrank in the second quarter.
READ: US Fed minutes: Most officials worried about inflation moving higher
In his speech at the annual symposium of global central bankers in Jackson Hole, Wyoming, Powell warned that risks of higher inflation and a weakening jobs market meant a “challenging situation.”
“Downside risks to employment are rising,” Powell said. He added that the effects of Trump’s tariffs on consumer prices “are now clearly visible.”
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“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” he said.
Powell has come under intense public pressure this year from Trump to lower rates.
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But the independent central bank has kept benchmark interest rates steady at a range of between 4.25 percent and 4.5 percent since its last reduction in December.
In keeping rates unchanged, policymakers cited resilience in the labor market as they monitored the effects of Trump’s wide-ranging tariffs on the world’s biggest economy.
Market expects a rate cut in September
“The market was pricing in roughly a 75-percent chance of a rate cut in September,” said Bret Kenwell, an investment analyst at eToro.
But the odds according to CME Group’s FedWatch tool exceeded 80 percent late Friday.
Kenwell noted however that “rising inflation is still a risk and may prevent the Fed from moving as quickly as they’d like, but the committee is unlikely to stand by idly if we see further weakness in the jobs market.”
The dollar fell against currencies such as the euro, pound and yen. Lower returns make the greenback less appealing to foreign investors.
READ: Trump flirts with Ukraine security, with narrow margins
Oil prices inched up after rising more than one percent on Thursday. Investors weighed the potential for a peace deal in Ukraine more than three years after Russia’s invasion.
Observers have been speculating over how a possible lifting of sanctions on Russia, a major oil producer, would impact markets.
In corporate news, Deutsche Post shares fell 1.1 percent. This was after the German postal service said it would restrict package deliveries to the United States due to Trump’s tariffs.
France’s La Poste, owned by the French state, announced similar restrictions.
