Wall Street traders breathed a sigh of relief, with Jerome Powell once again signaling that while a strong economy will keep officials on hold for now, he expects the Federal Reserve to cut rates this year.

Stocks and bonds rose as investors took his remarks as a “no news is good news” development. The Fed chief also said he’s not looking for inflation to reach the central bank’s 2 per cent target to start easing policy. 

To Michael Feroli at JPMorgan Chase & Co., Powell was pretty careful to avoid sending new signals on the direction of monetary policy — “which makes sense” considering the full set of inflation and employment data ahead of the next Fed meeting.

 “The market didn’t appear to be fazed by Powell continuing to play his cards close to his vest,” said Chris Larkin at E*Trade from Morgan Stanley.

The S&P 500 reclaimed its 5,100 mark, with tech shares leading gains. New York Community Bancorp whipsawed — facing multiple trading halts — amid news it was raising over $1 billion in equity to shore up investor confidence. Treasury 10-year yields fell five basis points to 4.11 per cent. The dollar dropped. Bitcoin resumed its rally, hovering near $67,000.

During this congressional testimony, Powell also noted that the risk from commercial real estate is “manageable.” The Fed Chair also said that the central bank is likely to significantly change its plan to require large lenders to hold more capital — a move that would mark a major win for Wall Street giants.

Central bankers are now grappling with how soon and how far they should lower rates. Cut too early, and officials worry they could fuel a pick-up in economic activity that keeps inflation above 2 per cent — the rate they see as appropriate for a healthy economy. Keep borrowing costs elevated for too long and they risk tipping the economy into a recession.

“While Powell didn’t commit to rate reductions in the near future, his positivity concerning the trajectory of inflation amidst confidence that the central bank’s current rate is likely at its peak is enough for market participants,” said Jose Torres at Interactive Brokers.

Powell’s remarks on Wednesday left intact expectations that the Fed will deliver three quarter-point rate cuts this year. While traders still see policy easing as early as June, their forecast is more aligned with the Fed’s than it was at the start of the year.

The U.S. economy has expanded at a modest pace since earlier in the year, while consumers showed more sensitivity to rising prices, the Fed said in its Beige Book survey of regional business contacts.

Traders also kept a close eye on the latest labor-market readings.

A report known as JOLTS showed U.S. job openings remained elevated in January. Meantime, companies boosted hiring in February at a moderate pace, with private payrolls increasing by 140,000 — while trailing estimates.

“The Fed can afford to sit on higher rates until the labor market starts to crack,” said Jamie Cox at Harris Financial Group. “Maximum employment is the stronger of the two mandates for rate cuts, and there is no there, there to force cuts at this point. So, the Fed has a free pass to inflation fight, for now.”

Corporate Highlights:

• Boeing Co. officials have failed to fully cooperate with U.S. investigators looking into how a panel blew off a 737 Max 9 in January, a Senate hearing was told Wednesday.
• Exxon Mobil Corp. filed for arbitration to retain pre-emption rights in a giant Guyanese oil field, threatening Chevron Corp.’s attempt to acquire a stake via its pending $53 billion takeover of Hess Corp.
• CrowdStrike Holdings Inc., a cybersecurity company, reported fourth-quarter results that were better than expected and gave an optimistic outlook for the current period.
• Fifth Third Bancorp’s revenue is trending toward the top of its previous guidance for the first quarter even as net interest income is likely to come in at the bottom, Chief Financial Officer Bryan Preston said.
• Abercrombie & Fitch Co. reported fourth-quarter earnings that exceeded forecasts, underscoring the apparel retailer’s ability to maintain momentum despite uncertain economic conditions.
• Nordstrom Inc. is forecasting muted revenue and comparable sales growth this year as sluggish demand at its high-end namesake stores offsets an improving outlook at its off-price Rack stores.
• Foot Locker Inc. reported sales that surpassed Wall Street’s expectations, overcoming concerns of a pullback in consumer spending on sportswear.

Key Events This Week:

• China trade, forex reserves, Thursday
• European Central Bank’s rate decision, Thursday
• U.S. initial jobless claims, trade, Thursday
• President Joe Biden delivers the State of the Union address, Thursday
• Fed Chair Jerome Powell testifies before the Senate Banking Committee, Thursday
• Cleveland Fed President Loretta Mester speaks, Thursday
• Eurozone GDP, Friday
• U.S. nonfarm payrolls, unemployment, Friday
• New York Fed President John Williams speaks, Friday
• ECB Governing Council member Robert Holzmann speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.7 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index rose 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.4 per cent to $1.0898
• The British pound rose 0.3 per cent to $1.2740
• The Japanese yen rose 0.4 per cent to 149.38 per dollar

Cryptocurrencies

• Bitcoin rose 5.8 per cent to $67,004.73
• Ether rose 9.7 per cent to $3,865.37

Bonds

• The yield on 10-year Treasuries declined five basis points to 4.11 per cent
• Germany’s 10-year yield was little changed at 2.32 per cent
• Britain’s 10-year yield declined two basis points to 3.99 per cent

Commodities

• West Texas Intermediate crude rose 1.2 per cent to $79.08 a barrel
• Spot gold rose 0.9 per cent to $2,146.34 an ounce