“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
Markets quickly priced in stronger odds of a rate reduction. The CME Group’s FedWatch tool showed traders assigning a more than 91% probability of a September cut, up from earlier in the week.
“Powell’s dovish Jackson Hole comments suggest the Federal Reserve is ready to cut interest rates in September, which is just what investors were hoping to hear, given the recent slowdown in the labor market,” David Laut, chief investment officer at Abound Financial, told CNBC. “While there is still one more employment report before the September meeting, it’s clear the Fed has enough data under its belt to justify a September cut.”
Treasury yields had risen earlier in the week as markets braced for Powell’s speech. The Wall Street Journal reported that by Thursday, investors were expecting little overt support for rate cuts, citing resilient economic activity and inflation still above the Fed’s 2% target. The 10-year yield at that point had climbed to 4.329%, and the 2-year yield stood at 3.791%.
US economic indicators have shown mixed signals in recent weeks. A stronger-than-expected services and manufacturing reading from S&P Global, which reported the US Composite PMI at 55.4 in August compared with 55.1 in July, pointed to ongoing expansion. At the same time, weekly jobless claims rose to 235,000, above economists’ forecasts, according to the Labor Department data.