The stock market rejoiced Wednesday afternoon with the biggest single-day gains since March after Federal Reserve Chair Jerome Powell was a bit more dovish in regards to interest rate hikes for 2019.
The Dow Jones Industrial Average jumped 617 points, or 2.5 percent, for it’s best three-day gain since 2016 with the addition of 111 points, or 2.4 percent, according to the Dow Jones Market Data Group.
The S&P 500 and Nasdaq also jumped more than two percent each.
But was that an overreaction?
Yes, says Harvard economist Martin Feldstein, who appeared in an interview with Fox Business correspondent Liz Claman on Wednesday.
“I think the market is over-interpreting,” Feldstein said.
In Wednesday’s speech, Powell said the Fed’s benchmark interest rate was “just below” neutral, a complete 180 from October when he said the rate was “a long way from neutral.”
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth,” Powell said.
Feldstein was one of two people who were able to ask Powell questions, and he said the speech struck a good balance for investors.
“He was very careful not to rock the boat, not to criticize the past, not to say that markets were overpriced. But I think they are overpriced,” he said.
Feldstein said the Fed should continue raising rates to protect the economy, and to make up for the past few years when rates were too low.
“(The Fed) should have started raising rates several years ago so that they would have the ammunition when the economy turns down,” he said. “And I think that’s what driving the Fed now.”