Fed’s Powell says rate cut ‘on the table’ as soon as September

Federal Reserve Chair Jerome Powell opened the door to interest rate cuts as early as September during testimony before Congress, signaling the central bank's readiness to ease monetary policy if inflation continues its downward trajectory. Powell told lawmakers that a rate reduction "is on the table" for the Fed's next meeting, marking a notable shift from the central bank's hawkish stance throughout 2023 and early 2024.

The remarks sent equities higher across major indices. The S&P 500 climbed on Powell's comments, with investors interpreting the guidance as confirmation that the Fed's inflation-fighting campaign has achieved sufficient progress to warrant monetary easing. Technology stocks, which carry higher valuations and benefit from lower discount rates, led the rally.

Powell emphasized that the Fed does not need to wait for inflation to reach its 2 percent target before cutting rates. Instead, the central bank will move once it has "greater confidence" that inflation is moving sustainably toward that goal. Recent data showed inflation cooling from peak levels, with the personal consumption expenditures price index declining to 2.5 percent year-over-year, down from earlier readings above 3 percent.

The Fed chief stressed that rate cuts would not constitute a reversal of the monetary tightening campaign. Rather, cuts would represent a normalization of policy as economic conditions warrant. Powell noted that the Fed has held rates steady at the 5.25 percent to 5.5 percent range since July 2023, and policymakers now believe sufficient progress has been made to consider adjustments.

Investors have priced in multiple rate cuts over the coming months. The CME FedWatch Tool shows elevated odds of a 25-basis-point cut at the September Federal Open Market Committee meeting. Treasury yields fell following Powell's testimony, with the 10-year Treasury yield declining as bond markets repriced interest rate expectations.

Powell cautioned that the Fed remains data-dependent and will assess incoming economic reports before making final decisions on rate cuts. Inflation remains the primary concern, though recent labor market data and manufacturing activity suggest the economy is cooling gradually without slipping into recession.

The prospect of monetary easing represents a significant inflection point for financial markets after more than a year of restrictive policy. Investors will now focus on employment reports, inflation data, and Fed communications before the September meeting.