U.S. stocks snapped two days of losses after Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank could be in a position to pause rate hikes sometime this summer. Treasury yields stayed elevated. 

Traders ditched their low-conviction moves toward the middle of the trading day, pushing the S&P 500 higher. The Nasdaq 100 also jumped as investors considered Bostic’s comments somewhat dovish. Both indexes shrugged off the losses they suffered earlier after data signaled continued resilience in the labor market, supporting the case for the Fed to keep raising rates.

Treasury yields across the curve stayed above the 4 per cent level. The policy-sensitive two-year rate has been climbing for three straight days, its longest rising streak in two weeks. A dollar index also clung onto gains.

While Bostic’s remarks boosted sentiment on Thursday, other central-bank officials in recent days have reinforced their hawkish rhetoric. Bostic too pledged to let the incoming economic data guide him, a stance shared by Boston Fed’s Susan Collins. The focus now is on how much higher interest rates might go in the U.S. and Europe, with swaps markets now pricing a peak Fed policy rate of 5.5 per cent in September, and some traders even betting that the benchmark interest rate could rise to 6 per cent. 

“Markets are now appropriately pricing in higher inflation and the impact higher interest rates will have on the economy,” said David Spika, president and chief investment officer of GuideStone Capital Management. “So what we saw in January and really going back to October was the markets were incorrectly interpreting a pivot, lower inflation, the Fed was going to stop raising rates, a soft landing — all of that was misguided and now the market is accurately pricing in, alright, the Fed is going to have to keep raising rates.”

But investors should expect data to continue to be mixed even as inflation comes down, according to Chris Harvey, Wells Fargo’s head of equity strategy. 

“We’re in a good situation where the economy has not cracked,” he said on Bloomberg Television. “Ultimately we are going to get to a lower level of inflation, but 2 per cent I think is more aspirational than anything else.”

Sarah Hunt of Alpine Woods Capital Investors also said that some of the impact of the Fed’s persistent rate hikes may not be seen just yet.

“I do think that there are parts of the economy for which those changes don’t happen so quickly,” she said on Bloomberg Television. “Wall Street is so used to focusing on the quarters that we lose sight of the fact that wage negotiations don’t happen every time the Fed changes rates, it happens once a year or once every couple of years depending on the industry.”

Meanwhile, data on Thursday also showed euro-area inflation slowed by less than anticipated and underlying price pressures surged to a new record, heaping pressure on the European Central Bank to drive up rates further. ECB interest rates are now seen rising above 4 per cent and German benchmark bond yields traded above 2.7 per cent. 

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.8 per cent as of 4:02 p.m. New York time
• The Nasdaq 100 rose 0.9 per cent
• The Dow Jones Industrial Average rose 1.1 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.6 per cent to US$1.0599
• The British pound fell 0.7 per cent to US$1.1950
• The Japanese yen fell 0.4 per cent to 136.74 per dollar

Cryptocurrencies

• Bitcoin fell 0.4 per cent to US$23,455.9
• Ether fell 0.8 per cent to US$1,644.63

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.06 per cent
• Germany’s 10-year yield advanced four basis points to 2.75 per cent
• Britain’s 10-year yield advanced four basis points to 3.88 per cent

Commodities

• West Texas Intermediate crude rose 0.3 per cent to US$77.96 a barrel
• Gold futures fell 0.1 per cent to US$1,842.80 an ounce