U.S. stocks jump as Fed chair Jerome Powell opens door to interest rate cut

Wall Street is rallying on Friday after the head of the U.S. Federal Reserve indicated in a highly anticipated speech that cuts to interest rates may be coming, though he gave no clear clue about when.

The S&P 500 jumped 1.3 per cent and erased all of its loss for the week. It's coming off its fifth straight modest loss after setting an all-time high last week. The Dow Jones Industrial Average was up 649 points, or 1.4 per cent, as of 10:05 a.m. ET, and the Nasdaq composite was 1.3 per cent higher.

The hope among investors had been that Jerome Powell would hint in his speech at a central bankers' symposium in Jackson Hole, Wy., that cuts to interest rates may be imminent. Wall Street loves lower rates because they can give a boost to the economy and to investment prices, even if they risk worsening inflation.

President Donald Trump has angrily been calling for lower rates, often insulting Powell while doing so. A surprisingly weak report on job growth this month pushed many on Wall Street to assume cuts are coming as soon as the Fed's next meeting in September.

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But Powell did not commit to any kind of timing in his speech on Friday, saying only that the Fed was prepared to act if necessary, as he has for much of this year while the Fed kept interest rates steady.

The Fed's two jobs are to keep the job market healthy and to keep a lid on inflation, and helping one by moving interest rates often means hurting the other.

Powell said the job market looks OK at the moment, even if "it is a curious kind of balance," where fewer new workers are chasing after fewer new jobs. Inflation, meanwhile, still has the potential to push higher because of Trump's tariffs.

In sum, Powell said "the stability of the unemployment rate and other labour market measures allows us to proceed carefully as we consider changes to our policy stance."

Treasury yields tumbled in the bond market after the release of the text of Powell's speech.

The yield on the 10-year Treasury fell to 4.27 per cent from 4.33 per cent late Thursday. The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with its main interest rate, sank to 3.71 per cent from 3.79 per cent.

Nvidia rose 0.9 per cent to trim its loss for the week. The company, whose chips are powering much of the world's move to artificial-intelligence technology, has seen its stock struggle recently amid criticism that it and other AI superstars shot too high, too fast and became too expensive.

Nvidia's CEO Jensen Huang said Friday that the company is discussing a potential new computer chip designed for China with the Trump administration. The chips are graphics processing units, or GPUs, a type of device used to build and update a range of AI systems.

But they are less powerful than Nvidia's top semiconductors today, which cannot be sold to China due to U.S. national security restrictions.