U.S. Stocks Settle at Monthly Highs After Fed’s Powell Signals Rate Cut Likely

Jerome Powell

The Dow and broader U.S. stock market settled mostly higher on Friday, extending their winning streak to three days after government data showed a surprise uptick in hourly wages.

Despite the rise in wage inflation, Federal Reserve Chairman Jerome Powell gave his strongest signal yet that another rate cut was on its way later this month.

Dow Extends Rally; S&P 500 Follows

Two of the three major U.S. indexes traded in positive territory at the close, with the Dow Jones Industrial Average climbing 69.31 points, or 0.3%, to 26,797.46. The blue-chip index was up by as much as 132 points earlier in the day.

DJIA

The broad S&P 500 Index of large-cap stocks rose 0.1% to 2,978.71, its highest since late July. Seven of 11 sectors finished higher, with materials and consumer staples leading the pack.

The technology-focused Nasdaq Composite Index gave up gains in the final hour, closing down 0.2% at 8,103.07.

August Job Creation Slows; Other Metrics Improve

U.S. employment grew less than expected in August while other markers of labor-market health improved, painting a mixed picture of the economy.

Employers added 138,000 workers in August, down from a revised 159,000 in July, the Labor Department reported Friday in Washington. Analysts in a median forecast were calling for a net gain of 158,000.

The unemployment rate stabilized at 3.7% for the third consecutive month even while workforce participation increased to 63.2% from 60% in July.

Average hourly earnings, the main proxy for wage inflation, climbed 0.4% on month and 3.2% annually, official data showed. Both figures were higher than expected.

The U.S. economy continues to outperform other advanced industrialized nations but a protracted trade war with China has led to a sharp slowdown in manufacturing. Earlier this week, the Institute for Supply Management (ISM) said the U.S. manufacturing sector contracted in August for the first time in three years.

Fed Signals Rate Cut Likely

Federal Reserve Chairman Jerome Powell says the U.S. economy is on even keel thanks to the central bank’s renewed commitment to lower interest rates. As The Wall Street Journal notes, Powell gave a strong signal that rates are likely headed even lower, perhaps as early as this month.

“The Fed…has seen fit to lower the expected path of interest rates and that has supported the economy,” Powell said during a moderated discussion in Zurich, as quoted by WSJ. “That’s one of the reasons why the outlook is still a favorable one.”

Fed officials voted to lower the benchmark interest rate by 25 basis points after the July 30-1 Federal Open Market Committee (FOMC) meeting. They are poised to do so again when they convene later this month in Washington. Fed Fund futures prices imply a 91.2% chance of a rate cut on September 18, according to CME Group.

Featured image courtesy of Shutterstock. Chart via Stockcharts.com.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi