Stocks jumped Thursday while Treasury yields and oil prices dipped after a Fed governor signaled he wants to keep interest rates flat – lowering the odds of a rate hike this month.
The Dow Jones Industrial soared 624 points, or 1.2% — its best day in a month — while the S&P 500 and Nasdaq also rose more than 1%.
The US 10-year Treasury yield – which had hit its highest level in three years the day prior – dropped to 4.756%.
Investors dumped government bonds over the past few weeks, convinced the Fed might hike interest rates at its Sept. 16 meeting. The rapid run-up in Treasury yields was threatening to drive borrowing costs higher for Americans already struggling to afford homes and new cars.
But on Thursday, Fed Governor Christopher Waller said he is leaning toward keeping interest rates steady – conflicting with Fed Chair Kevin Warsh’s hawkish speech at the central bank’s annual Jackson Hole conference last week.
Waller said the effects of President Trump’s tariffs have been muted and higher energy prices amid the Iran war have not bled into much of the economy.
He noted that inflation is still “meaningfully above” the Fed’s 2% goal, but said recent trends “suggest we are finally seeing some signs of disinflation.”
“If this continues in the data due over the next two weeks, I would be inclined to support holding the target for the federal funds rate at its current setting,” Waller told Reuters in an interview.
“I’m going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting,” he added. “What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%.”
Brent crude oil futures remained stubbornly above $95 a barrel Thursday – though they dropped from a brief high of $97 earlier in the day, which was reached after Iran fired missiles at Kuwait, a US ally in the Persian Gulf region.
National average gasoline prices jumped to $4.14 a gallon, according to AAA. Prices at the pump have remained stuck above the $4 mark for weeks, a notable increase from the pre-war average of $2.98.
It’s another added cost piled on top of inflation-battered Americans, who are also facing sky-high prices on new and used vehicles and rising car insurance costs.
But analysts at Goldman Sachs said in a note last week that oil exports from the Persian Gulf area have rebounded to roughly two-thirds of pre-war levels. It’s unclear how increased tensions in the Middle East this week have hit those exports.
In the meantime, global oil reserves have been shrinking, with the US Strategic Petroleum Reserve falling below the 300 million-barrel mark – its lowest level in more than four decades.
Trump has announced a historic agreement with Venezuela that will allow the US to “more than double” its reserves, taking a majority stake in more than 65 billion barrels of Venezuelan oil.
The president said the deal is meant to lower gasoline prices for Americans. Experts have warned the move is unlikely to bring down prices at the pump immediately, since there’s no telling how long it could take to gain access to the additional reserves.