U.S. stocks rose as Federal Reserve Chair Jerome Powell said the central bank has made progress in its battle against inflation, while warning that additional rate hikes are likely warranted.

The S&P 500 jumped more than 1per cent after Powell said the “disinflation process has started,” suggesting the aggressive tightening cycle is starting to have its desired effect of reducing the pace of price growth. The Nasdaq 100’s gains exceeded 2per cent. 

Treasuries also rallied. The two-year yield slid as much as twelve basis points to 4.08per cent, while the 10-year rate touched 3.38per cent. A dollar index fell to its lowest since April. 

Powell, during the press conference, also sidestepped a question about the recent easing of financial conditions, a measure of market stresses that the central bank monitors for the effectiveness of its policies. He said that the focus is “not on short-term moves but on sustained changes.” Investors had been bracing for harsh commentary from the Fed aimed at cooling the recent run-up in risk assets that could complicate its fight against inflation.

“Powell has said that financial conditions have tightened considerably despite the fact that they have eased considerably. The fact that he has said this is dovish in its own right,” wrote Neil Dutta, head of economics at Renaissance Macro Research. 

The odds are increasing that the Fed is “declaring victory too soon”, Dutta said. 

“The Fed’s flirtation with the soft landing today increases the risk of a harder landing later.”

But the Fed’s message wasn’t without warnings for financial markets. The central bank said ongoing rate increases would likely be warranted and that officials were discussing a couple more hikes to get policy restrictive enough to beat back inflation. The Fed Funds rate of 4.5per cent to 4.75per cent is still more than 25 basis points below where officials in December said they expected it to peak.

“The Fed is essentially speaking out of both sides of the mouth as they signaled further increases are appropriate, but also acknowledged they will consider the cumulative amount of tightening in future policy decisions,” Charlie Ripley, senior investment strategist for Allianz Investment Management, wrote in a note. 

Ripley said the Fed’s remarks indicate that it’s near the end of its tightening cycle and “ready to sit tight while the economic data catches up to the policy.”

But markets may be fighting the Fed again on Wednesday, according to Ronald Temple, chief market strategist at Lazard.

Powell’s comments, when taken together with data on Wednesday showing a surge in job openings makes Temple “believe markets remain too dovish regarding how high rates will go and how long they will stay there.”

Key events this week:

• Earnings Wednesday include: Meta Platforms and Peloton Interactive
• Eurozone ECB rate decision, President Christine Lagarde press conference, Thursday
• UK BOE rate decision, Thursday
• U.S. factory orders, initial jobless claims, U.S. durable goods, Thursday
• Earnings Thursday include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander
• Eurozone S&P Global Eurozone Services PMI, PPI, Friday
• U.S. unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.1per cent as of 4:01 p.m. New York time
• The Nasdaq 100 rose 2.2per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.7per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.8per cent
• The euro rose 1.2per cent to US$1.0988
• The British pound rose 0.4per cent to US$1.2373
• The Japanese yen rose 1per cent to 128.84 per dollar

Cryptocurrencies

• Bitcoin rose 2.7per cent to US$23,573.78
• Ether rose 3.7per cent to US$1,635.55

Bonds

• The yield on 10-year Treasuries declined 11 basis points to 3.40per cent
• Germany’s 10-year yield was little changed at 2.28per cent
• Britain’s 10-year yield declined three basis points to 3.31per cent

Commodities

• West Texas Intermediate crude fell 2.5per cent to US$76.90 a barrel
• Gold futures rose 1per cent to US$1,965.30 an ounce