Upbeat Testimony from Fed Chair Powell Fuels Stockmarket and the US Dollar

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Updated: Jul 18, 2018, 07:31 UTC

When pressed on the matter of trade disputes between the U.S. and its trading partners – namely China and the European Union – Powell said it was “difficult to predict” the implications of those on the economy. Essentially, Powell basically said that Fed policy is data dependent and the inclusion of the phrase ‘for now’ in its recent statement provides the bank with some flexibility if it needs to alter the interest rate ahead. Based on the reaction in the financial markets, it looks as if investors believe that trade policy has not yet affected the Fed’s intentions for further gradual rate hikes.

During his first day of testimony before Congress on Tuesday, U.S. Federal Reserve Chairman Jerome Powell offered a positive assessment of the U.S. economy, indicating that gradual interest rate increases were warranted. His comments were essentially a reiteration of the Fed’s monetary policy statement, the Fed minutes and Powell’s recent speeches and interviews.

When pressed on the matter of trade disputes between the U.S. and its trading partners – namely China and the European Union – Powell said it was “difficult to predict” the implications of those on the economy.

Essentially, Powell basically said that Fed policy is data dependent and the inclusion of the phrase ‘for now’ in its recent statement provides the bank with some flexibility if it needs to alter the interest rate ahead. Based on the reaction in the financial markets, it looks as if investors believe that trade policy has not yet affected the Fed’s intentions for further gradual rate hikes.

U.S. Economic Data

Early Tuesday, Federal Reserve data showed U.S. factory production rebounded in June by the most in four months as the industry regained its footing after a fire-related disruption at an auto parts supplier.

The latest results indicate a steady advance in the nation’s manufacturing sector. Factory output climbed at a 1.9 percent annualized rate from April through June, marking the third straight quarterly increase. In June, Industrial Production rose 0.6%, beating the 0.5% forecast and reversing a 0.5% loss in May.

In other news, the Capacity Utilization Rate came in at 78.0%, slightly below the 78.4% estimate. May’s report was revised lower to 77.7% from 77.6%.

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U.S. Stock Indexes

The major U.S. stock indexes recovered from early session losses on the back of upbeat comments from Fed Chair Powell and strong earnings and revenue reports.

The tech-heavy NASDAQ Composite reached a record high Tuesday, primarily driven by shares of Amazon which hit a new all-time high. Netflix managed to claw back from steep losses related to a disappointing earnings report that showed the company missed on subscriber growth projections. Early in the session shares were down as much as 14 percent before bargain-hunters fueled a turnaround. By the end of the session, Netflix was down only 5 percent.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.