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Jerome Powell suggested an interest rate cut is imminent – sending stocks soaring.
Powell expressed concerns over the jobs market and wider economy at the annual economic summit in Jackson Hole, Wyoming on Friday.
The head of the Federal Reserve expressed concerns to central bankers and economic leaders about the slowing GDP and increasing unemployment rates.
‘The balance of risks appears to be shifting,’ Powell told the Jackson Hole Economic Policy Symposium.
The ‘risks to inflation are tilted to the upside, and risks to employment to the downside’ may ‘warrant adjusting our policy stance’ Powell said.
The tech-heavy Nasdaq surged nearly two percent and the S&P 500 rose 1.4 percent on Powell’s remarks.
An upward-trending stock market is advantageous for Americans’ retirement savings, including 401(k) and IRA plans, as these are significantly invested in major indices like the S&P 500, Dow Jones, and Nasdaq.
Lower rates make borrowing cheaper for businesses—and crucially for ordinary Americans, who can then spend more on goods and services.
Jerome Powell suggested an interest rate cut is imminent
The speech sent stock markets soaring (pictured: The Nasdaq)
Wall Street, which experienced a decline from recent record highs over the past week, is currently optimistic that Powell and the Federal Reserve’s Open Market Committee will decide on a quarter-point interest rate cut at their upcoming September meeting.
‘Jerome Powell’s speech in Jackson Hole paves the way for a September rate cut,’ Paul Stanley, chief investment officer, Granite Bay Wealth Management said.
‘Investors have been worried in recent months about the sudden and sharp slowdown in hiring, and lower rates would help to ease financial conditions and potentially give employers more confidence to expand and hire,’ Stanley explained.
Earlier this summer the Fed indicated it could cut rates a maximum of two times this year, each by a quarter percentage point.
However, Powell’s remarks today suggest the central bank could cut rates three times – or by larger increments.
The Fed sets benchmark interest rates – currently between 4.25 and 4.5 percent -that influence everything from mortgage costs to stock prices.
Markets respond not just to official Fed decisions, but also to hints about future moves.
A grim July jobs report prompted many on Wall Street to bet on a rate cut in September.
Markets respond not just to official Fed decisions, but also to hints about future moves
For months Trump has pressured Powell to cut interest rates
Non-farm payrolls added 73,000 in July, far lower than the 100,000 expected by analysts. The unemployment rate also ticked up to 4.2 percent.
The report also sharply revised down the figures for May and June by a combined 258,000 jobs from the previously released figures.
Powell also remarked that although tariffs were starting to have a real effect on consumer prices it is possible that it could be a more short-lived shock rather than prolonged increase.
‘Higher tariffs have begun to push up prices in some categories of goods,’ Powell said.
‘We cannot take the stability of inflation expectations for granted. Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem.’
For months Trump has pressured Powell to cut rates, threatened to fire him, appoint a shadow chair and even harangued him over the cost of improvements to the Fed’s offices.
The independence of the Fed is seen by Wall Street as vital for market stability. Firing Powell would likely cause a rout in financial markets.