Stocks pop as Fed Chair Jay Powell signals shifting risks may warrant rate cut
Stocks are jumping amid Fed Chair Jay Powell’s speech at the Jackson Hole Economic Symposium, which includes these key headlines (from Bloomberg):
*POWELL: SHIFTING BALANCE OF RISKS MAY WARRANT ADJUSTING POLICY
*POWELL: SHORT-LIVED TARIFF PRICE EFFECTS A REASONABLE BASE CASE
*POWELL: SITUATION SUGGESTS DOWNSIDE RISKS TO EMPLOYMENT RISING
*POWELL: FED’S POLICY RATE IS MODESTLY RESTRICTIVE IN MY VIEW
Putting it all together: the Fed is saying for one half of its mandate (inflation), the problem looks to be short-term in nature, while the job market is in a more precarious position. And this scenario has taken shape at a time when the Fed chief judges the policy rate to be modestly restrictive — that is, putting downward pressure on economic and job growth as well as inflation, which offers some scope to reduce rates.
The SPDR S&P 500 ETF, Invesco QQQ Trust, and iShares Russell 2000 ETF popped to session highs, all up more than 1%, with small-caps leading the way higher.
The implied odds of an interest rate reduction at the central bank’s September meeting surged to 90% from 72% heading into this speech in the minutes following these headlines. More than 50 basis points of easing are now priced in through year-end.
