All three major US equity indices: The Nasdaq, the Dow Jones and S&P 500 spiked on hearing Fed Reserve chair Jerome Powell’s change of heart towards cutting interest rates, even if his Jackson Hole speech lacked one key detail – when America’s first interest rate cut of 2025 might actually come.
This comes after months of intense pressure from President Trump to cut rates, America’s most senior central banker has now finally signalled his willingness to cut US interest rates.
“To our surprise, chair Powell delivered a much more dovish policy signal than anticipated last week at the Jackson Hole central bank symposium,” said Benoit Anne, senior managing director and head of market insights group of asset manager MFS Investment Management.
“On this basis, the current market pricing for the odds of a potential rate cut of 25 basis points in September seem vindicated, with an implied probability of over 80%,” Anne added.
The market consensus has indeed been quick to conclude that the first rate cut will come in September.
Although what is not yet clear is whether the rate cut, whenever it comes, will be a one and done or the first of several.
“At this juncture, it is probably reasonable to think that the Fed may deliver three rate cuts at least over the next year,” said Anne.
“In Jackson Hole, Powell opened the door to a rate cut in September but stopped short of committing to one,” added George Brown, senior economist at Schroders. “While he acknowledged that ‘downside risks to employment are rising’, he also cautioned that ‘tariffs could spur a more lasting inflation dynamic’ through second-round effects.”
“To our minds, this means the September decision will hinge on the outcome of the August jobs and prices data. But the market has interpreted the remarks as confirmation easing is imminent,” said Brown.
For now, the S&P 500 is on a roll and a new record high for the year beckons.
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