NEW YORK—Stocks are returning to records on Wall Street Friday after the head of the Federal Reserve said it’s still likely a ways away from raising interest rates, even if it does begin dialing back its support for the economy later this year.
The S&P 500 was 0.7 percent higher at 4,502 in midday trading and back above its all-time high of 4,496.19 set on Wednesday. The Dow Jones Industrial Average was up 222 points, or 0.6 percent, at 35,435, as of 11:23 a.m. Eastern time, while the Nasdaq composite was 1 percent higher.
Stocks have set record after record this year thanks in large part to the Federal Reserve’s massive efforts to prop up the economy and financial markets. But the market’s moves have become more tentative as the beginning of the end of the Fed’s assistance comes into sight, now that the unemployment rate has dropped and inflation has picked up.
In a speech that investors have had circled for weeks, Fed Chair Jerome Powell said that the economy has already met one big milestone the central bank had set to slow the $120 billion in bond purchases it’s making each month to boost the economy. That could mean a paring back of purchases by the end of the year.
But Powell also cited past mistakes where policy makers made premature moves in the face of seemingly high inflation, and he said that the tests are “substantially more stringent” before the Fed will raise short-term interest rates off their record low.
“We have much ground to cover to reach maximum employment,” which is one of those tests, Powell said.
Stocks climbed through Powell’s speech, as low interest rates can act like steroids for the market. Stocks of companies whose profits are most closely tied to the economy were making the biggest gains. Smaller companies were also making the biggest gains, which often happens when investors feel more optimistic about lower rates and a stronger economy.
Treasury yields were lower, but only after some sharp swings. Yields fell when Powell cited past instances where policy makers prematurely raised interest rates on worries about short-term bursts in inflation, saying “such a mistake could be particularly harmful” now.
That could have been seen as an indication the Fed may keep the course on its support for the economy. But yields later recovered some of their drops after Powell said “substantial further progress” has been made on its inflation goals, one of the two milestones needed for the Fed to slow its bond purchases. The other, which focuses on employment, has shown progress, but Powell did not say it had been fulfilled.
The yield on the 10-year Treasury was at 1.31 percent after dropping from 1.35 percent shortly before Powell’s speech began. It’s down from 1.34 percent late Thursday.
Of course, Powell also said that the Delta variant of the coronavirus is complicating things, though he still expects improvements to continue.
A report on Friday showed that consumer spending in the country rose 0.3 percent in July from June, a sharp slowdown from the prior month’s 1.1 percent jump, for example. That’s a big deal when consumer spending is the driving force of the U.S. economy, and its growth slowed even though income growth for Americans accelerated to 1.1 percent last month.
The report also showed that a gauge of year-over-year inflation preferred by the Fed held steady at a high 3.6 percent in July, slightly higher than economists’ expectations.
Producers of commodities were making big jumps as lower yields and a weakening dollar pushed up prices for oil, gold, and other raw materials.
Occidental Petroleum gained 6.5 percent and miner Freeport-McMoRan rose 5.3 percent, for example.
Gap rose 2.6 percent after the retailer reported stronger sales and profit for the latest quarter than Wall Street expected. It benefited from strength in its Old Navy and other brands, and it’s part of an overwhelming crush of companies whose profits beat analysts’ already high expectations.
On the losing end was HP, which fell 2.8 percent. It reported stronger profit for the latest quarter than analysts expected, but its revenue fell short of forecasts.
Peloton Interactive tumbled 8.2 percent after the company reported a loss for its latest quarter, cut the price of its most popular product and disclosed that it’s been subpoenaed by the Justice Department and the Department of Homeland Security for documents related to its reporting of injuries associated with its exercise equipment.
Stock markets overseas were mixed. In Europe, Germany’s DAX rose 0.3 percent, and France’s CAC 40 was up 0.2 percent. London’s FTSE 100 were 0.4 percent higher. In Asia, Japan’s Nikkei 225 fell 0.4 percent, South Korea’s Kospi gained 0.2 percent and Hong Kong’s Hang Seng was virtually unchanged.