Wall Street falls and bond yields jump after Powell speech

throwing cold water on the idea of a Federal Reserve pivot in the near future that could complicate its war against inflation.P 500 erased all of the gains notched in the session leading up to the Fed Chair’s speech in Jackson Hole, Wyoming. Powell also said that the size of September rate hike will hinge on incoming data. Treasury two-year yields -- which are more sensitive to imminent Fed decisions -- advanced. The dollar fluctuated.

“Powell’s comments were remarkably in line with market expectations,” BMO’s Ian Lyngen said in a note. “He emphasised that the size of the September rate hike hinges on the ‘totality’ of the data -- this is telling in two regards 1) there will be a hike and 2) July’s inflation data isn’t enough to take 75 bp off the table -- so the debate remains 75 vs. 50 at least until we see the September 13 release of August’s CPI.

The Fed should consider pausing rate increases after hitting at least 3.4 per cent by year end to see how the economy reacts, said Philadelphia Fed President Patrick Harker. His Atlanta counterpart Raphael Bostic said he’s leaning toward favouring a 50-basis-point hike in September, adding that the economy is starting to respond to policy but rates need to move toward “restrictive” territory.Data Friday showed consumer spending rose less than expected as a key inflation metric turned negative.

The sharp rebound in stocks has faltered as investors fretted over a potential recession, with Fed officials signalling they will stay hawkish to fight historic inflation. Global equity funds had outflows of $US5.1 billion in the week through Aug. 24, with US stocks seeing their first redemptions in three weeks, according to a note from Bank of America, citing EPFR Global data.

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