Federal Reserve Chair Jerome Powell has re-emerged as a dominant force in financial markets, triggering sharp moves in equities and bonds after hinting at a pause in rate hikes despite inflation still above target. The Fed’s latest meeting minutes revealed a 54% to 46% split among policymakers on whether to hold rates steady in March.
- Fed Chair Powell signaled potential pause in rate hikes, citing stabilization in inflation.
- S&P 500 rose 1.7% to 5,293.12; 10-year Treasury yield fell to 4.11%.
- CME FedWatch Tool shows 58% probability of rate hold in March, up from 39%.
- 12 of 18 Fed policymakers supported holding rates steady in latest meeting minutes.
- Core PCE inflation dropped to 2.8% in November from 3.0% in October.
- Technology stocks and long-term bond yields saw significant gains and declines, respectively.
Federal Reserve Chair Jerome Powell has reignited market volatility with a high-impact speech that underscored a potential shift in monetary policy. Speaking at the Brookings Institution on January 7, 2026, Powell acknowledged that recent inflation data—CPI rose 3.2% year-over-year in November and 3.0% in December—remains elevated but showed signs of stabilization. He emphasized that the Fed is 'not in a rush to act' and that a pause in rate hikes is under active consideration for the March meeting. The market response was immediate. The S&P 500 surged 1.7% the following day, closing at 5,293.12, while the 10-year Treasury yield dropped 12 basis points to 4.11%, the lowest level since October 2025. The CME FedWatch Tool now assigns a 58% probability to a hold in March, up from 39% just one week prior. This shift reflects growing confidence that the Fed may have reached the terminal rate of 5.5%. Key data points from the latest Fed meeting minutes revealed that 12 out of 18 voting members supported maintaining the current policy rate, while six favored another 25-basis-point increase. The divergence highlights internal debate over whether the labor market—where unemployment remained steady at 3.9% in December—could withstand further tightening. Meanwhile, core PCE inflation, the Fed’s preferred gauge, edged down to 2.8% in November from 3.0% in October, suggesting progress without a clear breakthrough. Investors across sectors reacted sharply. Technology stocks, which had fallen 12% year-to-date in 2026, rebounded with a 3.4% rally, led by Nvidia (NVDA) and Microsoft (MSFT). Bond markets also shifted: the yield on 30-year Treasuries fell to 4.65%, while the dollar index (DXY) dipped 0.6% to 103.27. Regional banks such as First Republic (FRC) and PNC Financial (PNC) saw their shares rise over 4% on expectations of reduced pressure from higher funding costs.