Markets rise after Fed Vice Chair said that the Fed would stifle inflation

Dow jumped 435 (near session highs), advancers over decliners better than 3-1 & NAZ advanced 246.  The MLP index inched up to the 216s & the REIT index rose 7+ to 421.  Junk bond funds edged higher along with stocks & Treasuries saw more buying, lowering yields.  Oil dropped a big 4+ to the 82s (a more than 7 month low) & gold went up 14 to 1727 (more on both below).

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Federal Reserve Vice Chair Lael Brainard said that she expects the central bank to raise interest rates higher this year & to keep them elevated at those levels until scorching-hot inflation slows down.  Brainard stressed that policymakers remain focused on bringing inflation closer to the Fed's 2% goal & will need to push the interbank lending rate higher in order to do so.  "We are in this for as long as it takes to get inflation down," Brainard added.  "So far, we have expeditiously raised the policy rate to the peak of the previous cycle, and the policy rate will need to rise further."  Investors are betting that central bank policymakers will approve a 3rd consecutive 75 basis point interest rate hike when they meet again on Sep 20-21. The current benchmark federal funds at 2.25-2.50% is around the "neutral" level, meaning that it neither supports nor restricts economic activity.  But Brainard – along with other Fed officials, including Chair Jerome Powell, signaled that a restrictive stance will almost certainly be necessary as the central bank tries to pump the brakes on the economy.  "Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target," she continued.  Her comments echo those made by Powell in a speech he delivered 2 weeks ago at the Kansas Federal Reserve's annual economic symposium in Jackson Hole.  Powell reiterated a pledge to "forcefully" fight inflation that is still running near the hottest pace in 40 years.  "While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell said.  "These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."  Even with 4 consecutive interest rate hikes, including 2 back-to-back 75-basis-point increases, Powell stressed that the Fed is not in a place to "stop or pause" — an unwelcome sign for investors who were predicting a rate cut next year.

Fed Vice Chair warns interest rates need to remain high for 'some time'

The British pound (£) plummeted to its lowest level against the $ since 1985.  Sterling fell to $1.1407 in afternoon trade in London — a level not seen in 37 years — as investors responded to the UK's darkening economic landscape with a new prime minister at the helm.  British Prime Minister Liz Truss was officially appointed today after succeeding Boris Johnson in a closely fought leadership contest.  She inherits an economy in the throes of its worst cost-of-living crisis in a generation, with inflation hitting 10.1% in Jul.  The last time sterling fell to $1.14 was briefly in Mar 2020 & the Brexit result in 2016.  The level of $1.1407 has not been seen since 1985, under Margaret Thatcher's gov.  The British £ has been hammered over recent months by surging inflation — currently at the highest level among all G-7 nations — & the prospects of a looming recession.  The appointment of Truss, who is widely expected to cut taxes & boost borrowing, has added to UK debt market concerns.  It comes as the $ has soared this year amid global recession fears & the Federal Reserve’s aggressive interest rate hikes.  Sterling is currently down more than 15% against the greenback this year.  Against the €, the £ was also down almost 1% today at 86.83.  However, sterling has held up better against the single currency, down just 3% for the year.  The lowest level sterling has traded against the greenback was $1.052 in 1985

British pound falls to its lowest level against the dollar since 1985

Traders are now seeing a near certainty that the Federal Reserve enacts its 3rd consecutive 0.75 percentage point interest rate increase when it meets later this month.  The probability of a ¾ point hike moved to 82% today, according to the CME Group’s FedWatch tracker of fed funds futures bets.

Market bracing for three-quarter point hike from the Fed this month

Gold futures marked their highest finish in over a week, with prices holding above the key $1700 mark to recoup their loss from a day earlier & then some.  Worries about slowing global growth have helped precious metals find some support, but overall strength in the $ constrained gains.  Gold for Dec settled at $1727 per ounce, up $14 (0.7%).  Based on the most actively traded contract, prices, which lost 0.6% yesterday, settled at their highest since Aug. 30.  Expectations for slowing growth in China were helping to keep gold above critical support levels.  The ICE US Dollar Index a gauge of the $'s strength against a basket of rivals, was down 0.3% today's dealings at 109.67, but trades 0.1% higher week to date.  Prices for gold were little changed from the day’s settlement in the PM, shortly after the release of the Fed's Beige Book, which said the “outlook for futures economic growth remained generally weak.”  In electronic trading, Dec gold was at $1727.

Gold prices mark highest finish in more than a week

Oil futures moved lower, with Us prices at their lowest since Jan, pressured by concerns that further interest-rate hikes by the Federal Reserve & a drop in China's oil imports suggest a slowdown in energy demand.  Prices gave up earlier gains on the back of a threat from Russian Pres Vladimir Putin to cut off energy supplies if price caps are placed on the country's oil & gas exports.  West Texas Intermediate crude for Oct fell $4.44 (5.1%) to $82.44 a barrel, with prices for the front-month contract poised to settle at their lowest since Jan.  Nov Brent crude, the global benchmark, was down $4.28 (4.6%) at $88.55 a barrel, on track for the lowest finish since Feb.  There are also concerns about slow demand from China.  Customs data today showed that China's crude oil imports in Aug fell 9.4% from a year earlier.   Oil futures have retreated sharply from early Mar levels, when crude traded at roughly 14-year highs following Russia's late Feb invasion of Ukraine.  Crude has given back all of the post-invasion gains, with weakness tied to worries over the demand outlook as major central banks aggressively tighten monetary policy & China continues to impose major lockdowns as part of its zero-COVID policy.  Putin, speaking at a conference in Vladivostok, said Russia would walk away from energy contracts if the Group of Seven industrialized nations follows thru on a plan to cap prices on Russian oil as part of an effort to limit Moscow's ability to fund its invasion of Ukraine.  G-7 finance ministers on Fri pledged to put in place a system designed to cap Russia's income from oil sales, an idea that the nations' leaders had promised to explore at their summit in Jun.  The aim is to reduce Russia's revenues &, by doing so, its ability to continue its war in Ukraine, while also limiting the impact of the war on global energy prices.  “We will not supply anything at all if it contradicts our interests,” Putin said.  “We will not supply gas, oil, coal, heating oil — we will not supply anything.”

U.S. oil prices fall to their lowest since January on fresh concerns over a slowdown in energy demand

Traders were inspired by the words from a female member of the FOMC.  So they bought stocks that were oversold.  Oil keeps sinking in a confusing market which may have brought more stock buying today.

Dow Jones Industrials