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Powell says Fed may need to cut interest rates, will proceed cautiously
Stock Science6 months before
Summary：Fed Chairman Powell hinted at a possible rate cut in September at the Jackson Hole conference to address job market risks. While inflation remains above target, he believes the impact of tariffs may be short-lived. #FederalReserve #Powell #RateCutExpectations #InflationRisks #InvestorSentiment
Powell hints at policy shift
At the annual economic policy symposium in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell hinted that the central bank may cut interest rates at next month's meeting. He noted that while the job market appears stable, it is actually in a "strange equilibrium," with both labor supply and demand slowing, a fragile state that could deteriorate rapidly. Powell also emphasized that the current policy range remains highly restrictive, and if employment pressures continue to rise, an adjustment through interest rate cuts may be necessary.
Markets quickly bet on rate cuts
The market reacted quickly to these remarks. Traders increased the probability of a 25 basis point rate cut at the September 16-17 meeting to 85%, significantly higher than the previous 75% (Reuters data, August 22, 2025). Several Wall Street firms subsequently revised their forecasts, predicting that the Federal Reserve will have cut interest rates by a cumulative 0.5 percentage point by the end of the year, lowering the range from 4.25%-4.50% to 3.75%-4.00%. This spurred a broad rally in US stocks, a drop in Treasury yields, and a simultaneous weakening of the US dollar, igniting investor short-term sentiment.
Internal divisions and policy debates
However, Powell's stance was not without controversy. Some hawkish officials argued that with inflation still above target, a hasty rate cut was risky and should not be rushed. In contrast, others, including Governor Waller and San Francisco Fed President Mary Daly, favored swift action to prevent a further deterioration in the job market. Powell's remarks clearly align with the dovish camp, a stance supported by some participants in the meeting.
US stock market chart in early trading following comments from Federal Reserve Chairman Jerome Powell
Political pressures exacerbate complexity
Political factors also complicate the situation. Immediately after his speech, President Trump criticized Powell for cutting interest rates too late and called for his resignation, while also putting pressure on Federal Reserve Board Governor Lisa Cook. This move not only triggered legal investigations but also once again tested the Fed's independence amidst political interference. Although Powell reiterated that he would serve out his term until May of next year, discussions about his successor have already surfaced.
Investor sentiment and response direction
For investors, Powell's dovish signals have undoubtedly ignited market expectations. A rate cut means lower financing costs, which is expected to benefit the stock market and precious metals, but the shadow of inflationary pressure remains. Market sentiment is characterized by a mixture of excitement and anxiety, with investors fearing missing out on opportunities while also fearing the risks of policy reversals. In this environment, a rational approach is to maintain a neutral position, diversify assets, monitor the September 5th employment data and the upcoming inflation report, and remain highly sensitive to political fluctuations.
Powell's speech painted a complex outlook for the market: easing is imminent, but risks remain.
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