Powell Signals Possible Fed Rate Cut as Policy Risks Shift After Jackson Hole Speech

Powell Speech Strikes Cautious Tone, But Market Hears “Dovish Enough”

Jerome Powell didn’t outright promise a rate cut in Jackson Hole, but for traders, he said just enough. The Fed Chair acknowledged that risks are shifting and conditions “may warrant” a policy adjustment—central bank speak for “we’re watching the door.” With policy still considered restrictive and growth risks creeping higher, markets took the hint.

Equities Rip, Yields Slide as Cut Odds Firm Up

The reaction was fast. The Dow popped over 600 points and 2-year yields fell 8bps to 3.71%, as traders priced in higher chances of a cut at the September FOMC.

Stocks are sniffing a dovish pivot, and Powell’s careful tone suggests the Fed’s bias may be leaning in that direction—even if he won’t say it yet. No hard commitment, but the bond market is clearly betting the next move is down.

Labor Solid, But Tariffs Still a Wildcard for Inflation

Powell’s take on the economy was mixed. The labor market is still solid, and growth is hanging in, but he flagged trade and tariff risks as ongoing headaches. The Fed still isn’t sure how much inflation is in the pipeline from supply chain distortions, and Powell admitted it’ll “take time” for those effects to shake out. Inflation’s path is messy, and the Fed’s patience is deliberate.

Fed Framework Reviewed, but 2% Inflation Target Holds Firm

There was some reflection on the 2020 pivot to “flexible average inflation targeting”—a move Powell now admits got sideswiped by the post-COVID inflation surge. That playbook didn’t age well, and while the Fed won’t abandon the 2% target, it’s clearly walking a tightrope. Powell emphasized the importance of anchoring long-term expectations—a nod to credibility concerns after the “transitory” misfire.

Independence Stressed as Political Heat Builds

Without naming Trump, Powell made it clear the Fed’s not taking orders. Policy decisions will remain “based solely on data.” Translation: the market matters more than the White House. Traders should stay focused on upcoming data—especially inflation prints and consumer spending—as the tie-breakers for a September decision.

Outlook: Fed Has Room to Cut — If the Data Cooperates

More likely than not, the Fed is setting the stage for a rate cut—but they’re not in a rush. Powell is threading the needle between market expectations and inflation uncertainty.

Look at pullbacks as potential buying opportunities in risk assets, especially if incoming data softens. But again, we’re not out of the woods yet. Bottom line: the Fed’s not slamming on the brakes, but they’re easing off the gas—and the smart money is positioning for a turn.

More Information in our Economic Calendar.