US stocks jumped overnight, partially reversing Friday’s brutal sell-off and shrugging off early losses after Federal Reserve Governor Lael Brainard called for prudence in raising interest rates.
Investors have been grappling with the timing of the Fed’s next rate move, following a series of hawkish comments from central-bank officials last week.
Ms Brainard made it clear in her speech that show though the Fed should avoid removing support for the US economy too quickly.
Ms Brainard said she wanted to see a stronger trend in US consumer spending and evidence of rising inflation before the Fed raises rates, and that the economy still looked vulnerable to economic weakness abroad.
“Today’s new normal counsels prudence in the removal of policy accommodation," Brainard, one of six permanent voters on the Fed’s rate-setting committee, told the Chicago Council on Global Affairs.
She said the US labor market was not yet at full strength, which means "the case to tighten policy preemptively is less compelling. ”She said the labor market might still tighten further without putting pressure on inflation."
"The response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response," she said.
On Wall Street, the Dow rose 235 points, or 1.3%, at 18,322 as the market digested Brainard’s comments.
The S&P 500 was up 31 points, or 1.5%, to 2,146, with all 10 sectors in positive territory.
Meanwhile, the Nasdaq Composite Index was up 86 points, or 1.7%, at 5,183, propelled by a rally in biotechnology shares.
As solid as these rises were, they were around half the size of Friday’s rugged slide, so investors still remain cautious about US rates.
European stocks slid Monday, with investors fleeing risky assets as the markets confronted the prospect that interest rates will be raised in the U.S. this month. The Stoxx Europe 600 dropped 1% to 342.23, ending at the lowest level in more than two weeks.
Among individual indexes, Germany’s DAX 30 fell 1.3% to 10,431.77, and France’s CAC 40 shed 1.2% to 4,439.80. Meanwhile, Spain’s IBEX 35 was pushed 1.8% lower to 8,866.60, and Italy’s FTSE MIB stumbled 1.8% to 16,840.28.
In London, the U.K’s FTSE 100 fell 1.1% to 6,700.
Monday’s sell-off followed Friday’s slide of 1.1% for the pan-European index. Futures are showing a rebound in Europe tonight.
Speaking in Chicago, Ms Brainard said the Fed needs to be cautious about increasing rates and avoid getting trapped in a low-growth, low-inflation environment.
Those comments were the opposite to what other Fed officials had been saying, such as Boston Fed President, Eric Rosengren, who suggested that interest rates needed to rise.
That saw a massive sell off on Friday night, our time, which spilled over into Asian and European markets overnight Monday.
Ms Brainard’s comments overshadowed those from Atlanta Fed President Dennis Lockhart who said in a speech overnight that he thought the economic data over the past few weeks “warrant…serious discussion of a policy rate increase.”
But Minneapolis Fed President Neel Kashkari, told CNBC overnight that there was no ‘huge urgency to do anything’.
Those speeches were the last public comments from Fed officials as the central bank enters its “blackout” period ahead of its two day meeting next week.
The rise in the S&P 500 overnight Monday was the biggest for two months.
