Like a master puppeteer, Jerome Powell worked the marionette market like a charm with just a few words.

“It makes sense to moderate the pace of our rate increases,” said Powell, chairman of the Federal Reserve (Fed).

Right on cue the choppy stock market launched into a sharp rally higher on the day.

Powell speech ignites stock market rally

Stock market participants got what they longed for when Powell uttered those words of easing off a staunchly hawkish Fed monetary position.

Powell opened the door to continue raising benchmark interest rates, but at a slower pace than previously expected.

“Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt,” Powell said Wednesday afternoon during a speech at the Brookings Institution in Washington, D.C. “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.

“The time for moderating the pace of rate increases may come as soon as the December meeting.”

Prior to Powell’s speech, the Dow and S&P 500 were trading in the red with the Nasdaq just above flat. Once his words filtered through the internet, the stock market rallied quickly.

At one point the Dow jumped above 800 points higher on the day.

In the market today, the Nasdaq topped the indexes amidst the rocketing rally by gaining 4.41% to 11,468.00 points. The Dow closed at 34,589.77 points to jump 2.18% (adding 737.24 points on the day). The S&P 500 added fuel to the rally with a 3.09% bounce to 4,080.11.

Powell speech may not end bear market

Traders shouldn’t get their hopes up that this means the bear market will hibernate this winter.

“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” Powell said. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

The Fed chair made it clear that he and the Federal Open Market Committee (FOMC) – which sets monetary policy – hold a strong commitment to “restoring price stability.”

“After our November meeting, we noted that we anticipated that ongoing rate increases will be appropriate in order to attain a policy stance that is sufficiently restrictive to move inflation down to 2 percent over time,” Powell stated. “Despite some promising developments, we have a long way to go in restoring price stability.”

The FOMC, or central bank, in November hiked benchmark interest rates another 75 basis points, or .75%, and pushed the federal funds rate to a range of 3.75% to 4.0%. This was the sixth interest rate hike this year from the FOMC, and the fourth .75% rate hike in a row.

The Fed may be leaning moderate at the moment, but Powell sees much work to be done to gain control of inflation.

“Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level,” Powell said.

Navigating a tricky, shifting stock market

Simpler’s traders are heeding that caution from Powell. They know the market could shift rapidly with any reversal of Powell’s indication of lowering the pace of raising interest rates.

“Any time there is a sure thing, the market tends to throw an audible,” said John Carter, Founder of Simpler Trading.

The market is tricky, and John shared in the Simpler Trading online chat room how he has been watching for a rally into December. Powell helped support that position with his latest statements.

Still, John noted that expectations for a recession were at record highs before Powell’s speech. The general idea is that the market is headed for a big fall. That may still be the case in due time.

“You never see the markets fall when there is record bearishness,” John said. “When markets fall there is record bullishness.”

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