Powell’s Jackson Hole speech: Rate cut bets and inflation risks put S&P 500 on edge

Powell’s Jackson Hole Spotlight: Markets Lean Bullish, But Politics and Inflation Cloud the Picture

So here we are—Jackson Hole Friday, and all eyes are on Jerome Powell. Look, traders have already priced in an 85% chance the Fed cuts rates in September. That’s a big move from just a month ago when the odds were barely above 50%. The smart money is betting Powell keeps the door open. The question is—does he give the market the green light today, or stick to a cautious script?

Jobs Weak, Inflation Sticky: Powell’s Balancing Act

The labor market is flashing stress. July payrolls were just 73,000 with downward revisions to prior months. That’s weak enough to justify easing. But inflation hasn’t cooled enough—June ran at 2.7% year-over-year, and July’s PPI spiked 0.9%, well above expectations. Powell has one foot on the gas and one on the brake, which is why markets are nervous. More likely than not, he acknowledges the slowdown but avoids tying himself to September.

Trump Turns Up the Heat

Here’s the thing—President Trump is making Powell’s job harder. He’s demanding three full percentage points in cuts, even calling Powell a “moron.” He’s threatened lawsuits and suggested the Fed board “assume control.” No matter how bad the data looks, Powell has to defend the Fed’s independence today, and traders will parse every word for hints he’s bowing to pressure.

Powell May Scrap 2020 Playbook: What That Means for Rates

Beyond the near-term rate chatter, Powell will unveil the Fed’s five-year framework review. Word is he may roll back the 2020 “flexible average inflation targeting” approach that let inflation run hot. A return to preemptive inflation-fighting would mark a longer-term hawkish tilt—even if near-term cuts still happen. For traders, this isn’t just about today’s speech but about how the Fed sets the tone for the next cycle.

Dovish, Neutral, or Hawkish: What Each Path Means for Stocks

Let’s game it out. If Powell leans dovish (35% chance), the S&P 500 likely rallies 1–2% over the next week, with REITs and utilities leading. A neutral, data-dependent line (50% odds) could spark a quick 0.5–1% dip before stabilizing as traders wait for payrolls. A hawkish surprise (15% chance) would hit hardest—stocks sliding 2–3% with 10-year yields spiking as rate-cut hopes unwind.

Bottom Line: Stay Nimble on Powell Day

I think Powell threads the needle—acknowledging labor weakness without locking into September. That keeps markets leaning bullish while giving him room to maneuver. Bias is cautiously positive, but it doesn’t take much imagination to see volatility spike if Powell leans hawkish.

Bottom line: trade the reaction, not the speech. Pullbacks look like buying opportunities—but keep stops tight and stay nimble.

More Information in our Economic Calendar.