ASX set to rise as Fed chief sparks Wall Street rally

Stocks rebounded after Jerome Powell signalled a likely slowdown in the pace of interest rate rises as early as this month’s meeting, while indicating more hikes will be needed to curb inflation.

After trading in negative territory for much of the session, the S&P 500 is 1.4 per cent higher in mid-afternoon trade while the Dow Jones is up by 1.1 per cent. The Nasdaq has surged by 3.2 per cent. The Australian sharemarket is set to open higher, with futures at 6.19am AEDT pointing to a rise of 38 points, or 0.5 per cent, at the open. The ASX added 0.4 per cent on Wednesday.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in the text of his speech. “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”

Powell also said rates are likely to reach a “somewhat higher” level than officials estimated in September, when the median projection was for 4.6 per cent next year. Those projections will be updated at the December meeting.

“This rally is a nonsense: Powell said they will slow down, but that rates will have to go higher than forecasted earlier,” said Milan-based market veteran Roberto Bagnato at Immobiliare Quadronno Srl. “The market wants to listen only to the first part of Powell’s statement.”

Officials have signalled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on December 13-14, after four successive 75 basis-point hikes which have lifted it to a 3.75 per cent to 4 per cent target range.

The economy has been slowing, but contains strong pockets that have given markets hope that a recession could be avoided. The government on Wednesday said the economy grew at a 2.9 per cent annual rate from July through September, an upgrade from its initial estimate.

Ahead of Powell’s remarks, Fed Governor Lisa Cook said it would be prudent for the central bank to make smaller hikes as it determines how high it will need to go to tame price gains.