Federal Reserve Signals Rate Cuts

(Reuters) – Federal Reserve Chair Jerome Powell announced on Friday that “the time has come” for the U.S. central bank to cut interest rates. Rising risks to the job market have left no room for further weakness, and inflation is nearing the Fed’s 2% target, suggesting imminent policy easing.

“The upside risks to inflation have diminished. And the downside risks to employment have increased,” stated Powell in a highly anticipated speech at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Market Reactions

• STOCKS: The S&P 500 rose by 0.92%.
• BONDS: The yield on benchmark U.S. 10-year notes fell to 3.812%, while the 2-year note yield dropped to 3.955%.
• FOREX: The dollar index decreased by 0.394%.

Analysts’ Comments

Uto Shinohara, Managing Director and Senior Investment Strategist, Mesirow, Chicago

• Powell validated market expectations for a September rate cut while emphasizing data dependency.
• The expectation for the Fed to cut rates soon is driving the dollar lower, despite little change in implied rate cut estimates.

Steve Englander, Head of Global FX Research and Macro Strategy, Standard Chartered Bank, New York

• Market reactions suggest a weaker dollar and lower bond yields.
• Powell focused on the inflation target and concerns regarding the labor market without committing to a specific timetable for rate cuts.

David Doyle, Head of Economics, Macquarie Group, Toronto

• Powell sets the stage for September rate cuts, heavily reliant on upcoming data.

Sam Stovall, Chief Investment Strategist, CFRA Research, Allentown, PA

• Surprised by Powell’s clear statement on declining inflation, indicating that the Fed is not behind the curve.
• Anticipates a measured approach to rate cuts.

Elias Haddad, Senior Markets Strategist, Brown Brothers Harriman, London

• Powell’s dovish message suggests increasing concern over the labor market, likely boosting equity markets.

Andre Bakhos, Managing Member, Ingenium Analytics LLC, Plainsboro, New Jersey

• Anticipates a 50 basis point cut, contingent on job market numbers.

Glen Smith, Chief Investment Officer, GDS Wealth Management, Texas

• A rate cut in September is nearly assured; questions linger on the potential for multiple cuts thereafter.

Karl Schamotta, Chief Market Strategist, Corpay, Toronto

• Powell’s comments suggest growing market confidence in multiple rate cuts in the coming months.

Wasif Latif, President and Chief Investment Officer, Sarmaya Partners, Princeton, New Jersey

• Markets are positively reacting to anticipated rate cuts from the Fed.

Paul Christopher, Head of Global Strategy, Wells Fargo Investment Institute, St. Louis, Missouri

• The Fed aims for a gradual approach despite clear indications of future rate cuts.

Peter Cardillo, Chief Market Economist, Spartan Capital Securities, New York

• Powell’s comments indicate possible significant cuts if labor market weakness continues.

Marc Chandler, Chief Market Strategist, Bannockburn Global Forex, New York

• The market may react dovishly initially, but future rates will depend on incoming economic data.

Kim Forrest, Chief Investment Officer, Bokeh Capital Partners, Pittsburgh

• The Fed appears ready to be more accommodating, aligning with market expectations for rate cuts.