The US benchmark rate currently stands at 4.25% to 4.5%. According to the CME FedWatch tool, traders now see an 87.3% probability that the Federal Open Market Committee (FOMC) will cut rates to a range of 4% to 4.25% at its September meeting, with just a 12.7% chance of no change.
Markets rallied sharply following Powell’s remarks. The Dow Jones Industrial Average surged 846 points, or 1.89%, closing at a record high of 45,631.74. The broader S&P 500 rose 1.52% while the Nasdaq Composite gained 1.88%, snapping a five-day losing streak. CNN reported that bond yields also fell as investors anticipated a potential easing cycle, with the US dollar weakening against major currencies.
Economists noted Powell’s tone was more “dovish” than markets had expected. Krishna Guha, vice chairman at Evercore ISI, said Powell appeared concerned about the labor market and growth and potentially ready to lower interest rates. Diane Swonk, chief economist at KPMG US, observed that while Powell “opened the door a little wider” to a September cut, the Fed remained cautious about inflation risks.
Capital Economics’ Stephen Brown said a September rate cut looked “almost nailed on,” though stronger-than-expected job creation or “much more concerning” inflation data in August could prompt a delay.
The political backdrop to the Fed’s deliberations remains contentious. President Donald Trump has long pressured Powell for rate cuts, at times insulting him personally and raising the possibility of removal. Powell avoided direct reference to these pressures but underscored the Fed’s independence, saying, “We will never deviate” from a data-driven approach.