Federal Reserve Chair Jerome Powell signaled the central bank stands ready to cut interest rates as early as September, a sharp pivot from months of hawkish messaging about keeping rates elevated.
Powell's remarks at the Jackson Hole Economic Symposium Friday reset market expectations. The Fed has held rates at a 23-year high of 5.25 to 5.50 percent since July 2023, but inflation has cooled enough to justify loosening policy sooner rather than later.
"We have made real progress on inflation," Powell said, opening the door to rate cuts without committing to a specific timeline. The statement matters because it hands investors and traders permission to price in lower borrowing costs before year-end.
The S&P 500, Nasdaq 100, and Dow Jones Industrial Average all rallied on the news. Futures markets now embed a 75 percent probability of a 25-basis-point cut at the Fed's September 17-18 meeting, up sharply from prior expectations. Treasury yields fell across the curve, with the 10-year note dropping below 3.9 percent.
Powell's shift reflects tighter labor market data and cooling PCE inflation. While headline inflation remains above the Fed's 2 percent target, core PCE has slowed to 2.9 percent year-over-year. Unemployment ticked up to 4.3 percent in July, giving Powell cover to ease monetary policy without appearing inconsistent on inflation control.
The housing market, commercial real estate, and regional banks all face pressure from elevated rates. A September cut would provide relief to mortgage borrowers and developers while supporting credit-sensitive equities and high-yield bonds.
Powell stopped short of guaranteeing cuts. "Data dependent" remains his mantra. A stronger-than-expected jobs report or inflation rebound before September could force the Fed to