Dow closes more than 450 points higher after Fed’s Powell hints rate cuts are coming

New York (CNN) — Stocks rose Friday as Wall Street cheered a signal from Federal Reserve Chair Jerome Powell that long-awaited interest rate cuts are finally coming.

The Dow closed 462 points, or 1.1% higher, on Friday afternoon. The S&P 500 gained 1.2% and the Nasdaq Composite added 1.5%. All three major indexes ended the week higher.

Powell said Friday morning that “the time has come” to adjust policy, with rates currently perched at a 23-year high, at a key economic summit in Jackson Hole, Wyoming. He also noted that the labor market has cooled enough not to pressure inflation higher and that the central bank does not want to see more weakening in job market conditions.

“While a September rate cut is essentially a done deal at this point, the more important question is whether this will be a one and done rate cut, or if it will be the beginning of a more substantial cutting cycle, and that will be determined by the economic data over the next two to three months,” wrote Glen Smith, chief investment officer of GDS Wealth Management, in a Friday note.

Minutes from the Fed’s July meeting, released on Wednesday, show that the “vast majority” of the Federal Open Market Committee would want to lower rates in September if inflation continues to slow down. Some officials noted the importance of communicating that the Fed is data dependent and has no preset path.

Some officials also fretted that the softening labor market could weaken considerably if policy stays restrictive for too long. Recent data has shown that US job growth was weaker than previously estimated in the 12 months leading up to March. The Bureau of Labor Statistics’ preliminary 2024 review of employment data indicated there were 818,000 fewer jobs during that period.

That comes as job growth has slowed more than expected in recent months, worrying some investors that the US economy is on shaky footing as interest rates stay at a 23-year high. The slowing job growth, coupled with cooling inflation, has led traders to bet that the Fed will cut rates in September, as well as in November and December, according to the CME FedWatch Tool.

While there’s been some talk of a half-point cut at the Fed’s monetary policy meeting next month, some investors say that’s unlikely to happen with the current data, since a move of that magnitude would suggest that the economy is heading towards, or already in, a recession.

Fears about an economic downturn have cooled since a weak July jobs report rattled markets earlier in August. Stocks have clawed back all of their losses from the global markets rout after a cool consumer inflation report and retail sales data restored optimism in a soft landing, or a scenario in which the Fed brings down inflation without triggering a recession.

“Growth is slowing but not yet slow and this soft patch should not be mistaken for the onset of a recession. Growth scares are part of the economic cycle,” wrote Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, in a Tuesday note.

Elsewhere, gold futures touched a record high price of $2570.40 a troy ounce on Tuesday before retreating.

Data Thursday revealed that sales of previously owned homes in the US grew 1.3% last month, snapping a four-month streak of sales declines. Sales fell 2.5% in July from the prior year, National Association of Realtors data showed.

Target shares gained 10% this week after the company on Wednesday reported a surge in quarterly profits. Shares of Macy’s fell 9.8% after the company reported a drop in sales last quarter and lowered its full-year revenue guidance.

Boeing shares lost 2.8% this week after the company found issues in a structural component between the engine and wings of its long-delayed 777X aircraft in a test flight, continuing problems for Boeing after its safety crisis earlier this year.

As stocks settle after the trading day, levels might change slightly.