By Ezra Fieser and Carter Johnson
(Bloomberg) — Treasuries jumped and traders added to bets on a September interest-rate cut after Federal Reserve Chair Jerome Powell indicated a reduction may be warranted to support the labor market.
Yields tumbled as much as 11 basis points across tenors with the two-year notes’ — which are more sensitive to changes in monetary policy — falling to 3.68%, the lowest level in more than a week. Traders immediately boosted wagers on a quarter-point cut next month, pricing in a roughly 85% chance of a move, up from around 65% before Powell spoke.
In remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming, on Friday Powell said, “the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.”
The greenback slumped to a session low against a basket of peers as he spoke, with the Bloomberg Dollar Spot Index falling 0.8%.
For bond investors, Powell’s comments helped solidify hopes that the Fed will resume cutting after leaving the policy rate on hold at a range of 4.25% to 4.5% since December. For weeks, the market had been whipsawed by data that painted a mixed picture of the US economy and hawkish comments from other Fed officials.
Interest-rate swaps tied to Fed meetings show policymakers cutting twice before the end of the year, with the first one seen more likely to come next month.
“He used the speech to solidify expectations for 25 basis points in September,” James Bullard, former St. Louis Fed President and now dean of Purdue University’s business school, said on Bloomberg TV. “He leaned into the most recent labor market report which was very soft. I think that is a done deal.”
For Treasuries, the rally was the best day since the start of August, when a report showed softness in the U.S. labour market.
Powell’s remarks suggest “a shifting of risks towards the weakness in the labor market and away from the stickiness of the US inflation,” said Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole. “His comments further seem to prepare the ground for a September cut.”
–With assistance from Ye Xie.
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Last modified: August 22, 2025