The Dow Jones Industrial Average was up almost 1% after Fed Chair Jerome Powell’s speech at Jackson Hole. Powell’s speech was focused on the Fed’s commitment to their long-held dual mandate, which encompasses maximum employment and stable market prices. The price dipped later but is still up 0.5% in the first hour of trade on Wall Street.
The real market-mover was the Chairman’s comments on inflation, where he re-affirmed the bank’s desire to meet their 2% target on inflation. This follows speculation that the Federal Reserve may change their approach to monetary policy and it supports the current market conditions, with traders assured that the Fed and other central banks will continue to fight deflation with monetary tools.
Another supportive development on the day for the Dow Jones was the release of GDP figures and jobless claims. The GDP was revised higher from expectations of -32.5% to 31.7%, whilst jobless claims came in around the 1 million level, highlighting that a recovery was underway in the labour market, even if it is a slow one.
Within Chairman Powell’s comments were a recognition that inflation could be allowed to overshoot the 2% level in order to average that figure and this was enough for a rally in risk assets. Due to the current economic outlook, there is little opportunity to tighten monetary policy and this will support stocks going forward.
The Dow Jones has broken above the weekly highs to trade at 28567 and the index is trading inside a price channel with next resistance lining up around the 29,000 level. The big upside target will the February high of 29530. Stop losses should be set at 28170, which would be a signal that the lower channel support line was going to give way. 27568 would be the next target on the downside.