The U.S. stock market rebounded in a huge way Tuesday after U.S. Federal Reserve chairman Jerome Powell said outright the Fed is open to easing monetary policy to rescue the battered economy amid escalating trade tensions.
Analysts said speculation that Republican senators are determined to block president Donald Trump's move to levy new and escalating tariffs on Mexico starting June 10 was also a factor in Wall Street's rebound.
Powell said the Fed will "act as appropriate to sustain the expansion." He added the Fed doesn't know "how or when" global trade tensions stoked by Trump will be resolved, however.
"We are closely monitoring the implications of these developments for the U.S. economic outlook," said Powell.
"As always, we will act as appropriate to sustain the expansion," he said at the Fed's monetary policy conference in Chicago.
Powell's remarks came only a day after St. Louis Fed President James Bullard said the central bank might cut interest rates sooner than expected amid concerns about rising risks to U.S. economic growth.
Speculation about a Fed rate cut has risen greatly on account of Trump's incessant use of tariffs to bully other countries such as China and Mexico into bilateral trade negotiations. The CME FedWatch tool estimates a 90% chance of a September rate cut. Expectations for a second rate cut in December exceed 80%.
Tuesday's spate of positive news was a welcome respite from the pounding stocks have taken over the past four weeks. The Dow Jones Industrial Average on Tuesday staged a stunning comeback, climbing 512 points mainly on positive assurances from the Fed a rate hike is not an impossibility this year.
The Dow jumped 512.40 points or by 2.1% to 25,332.18. The S&P 500 improved 2.1% to 2,803.27 while the NASDAQ Composite surged 2.7% to 7,527.12. Tuesday's performance was the three indices second-best day so far this year since Jan. 4.
Over the past four weeks, however, the S&P 500 fell more than 5% while the Dow shed 4.6%. The NASDAQ, meanwhile, fell more than 8% and now stands in correction territory. The 10-year Treasury note yield also rose after falling to its lowest level in 20 months on Monday.
