Investors are betting on a change in September
Federal Reserve chair Jerome Powell has increased expectations of a US interest rate cut next month, signaling that the central bank may move to ease borrowing costs amid slowing job growth and persistent inflation concerns.
Speaking at the annual central banking symposium in Jackson Hole, Wyoming, Powell acknowledged that risks to employment are mounting while the inflationary impact of tariffs may prove temporary. “In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation,” he said, according to the BBC.
Powell emphasized that monetary policy is not “on a preset course,” stressing that decisions would be “based solely on their assessment of the data and its implications for the economic outlook and the balance of risks.”
The US benchmark rate currently stands at 4.25% to 4.5%. According to the CME FedWatch tool, traders now see an 87.3% probability that the Federal Open Market Committee (FOMC) will cut rates to a range of 4% to 4.25% at its September meeting, with just a 12.7% chance of no change.
Markets rallied sharply following Powell’s remarks. The Dow Jones Industrial Average surged 846 points, or 1.89%, closing at a record high of 45,631.74. The broader S&P 500 rose 1.52% while the Nasdaq Composite gained 1.88%, snapping a five-day losing streak. CNN reported that bond yields also fell as investors anticipated a potential easing cycle, with the US dollar weakening against major currencies.
Economists noted Powell’s tone was more “dovish” than markets had expected. Krishna Guha, vice chairman at Evercore ISI, said Powell appeared concerned about the labor market and growth and potentially ready to lower interest rates. Diane Swonk, chief economist at KPMG US, observed that while Powell “opened the door a little wider” to a September cut, the Fed remained cautious about inflation risks.
Capital Economics’ Stephen Brown said a September rate cut looked “almost nailed on,” though stronger-than-expected job creation or “much more concerning” inflation data in August could prompt a delay.
The political backdrop to the Fed’s deliberations remains contentious. President Donald Trump has long pressured Powell for rate cuts, at times insulting him personally and raising the possibility of removal. Powell avoided direct reference to these pressures but underscored the Fed’s independence, saying, “We will never deviate” from a data-driven approach.
Still, investors welcomed his signal. “Powell threaded the needle perfectly—dovish enough to keep September cuts alive but disciplined enough to maintain Fed credibility amid political pressures,” Jayson Bronchetti, chief investment officer at Lincoln Financial, told CNN.
Analysts say a cut would lower borrowing and savings rates, boosting consumer spending and business investment while providing tailwinds for financial markets. Traders are currently pricing in an 83% chance of a 0.25% cut in September, according to CME FedWatch.
With Powell’s term ending in 2026, this year’s Jackson Hole address may be among his last at the symposium. For now, markets are betting the Fed will step in to shore up growth as the labor market cools, while keeping an eye on inflation trends that remain above the central bank’s 2% target.
What are your thoughts on the latest projections? Share your insights in the comments below.
