- Powell’s announcement led to a positive response in financial markets, with Bitcoin, traditional stock indices, and gold surging.
- The likelihood of a 50 basis point rate cut in September has increased to 32.5%, although markets still favor a smaller 25 basis point reduction.
Fed Chairman Jerome Powell’s latest remarks have set the stage for a significant shift in US monetary policy, Coindesk reported. Speaking at the Jackson Hole Symposium, Powell confirmed what many had anticipated: rate cuts are likely coming in September.
After a prolonged period of high interest rates aimed at curbing inflation, Powell’s declaration marks a pivotal moment. “The time has come for policy to adjust,” Powell stated, signaling the Fed’s readiness to pivot towards easing its monetary stance.
This adjustment, he explained, is driven by growing confidence that inflation is moving towards the Fed’s 2% target and a significant cooling in the labor market. “We do not seek or welcome further cooling in labor market conditions,” he emphasized, pointing to a delicate balance the Fed aims to maintain.
See Related: Wall Street’s Main Indexes Advanced After Fed Chair Powell’s Remarks
Market Reactions To Powell’s Speech
The immediate response to Powell’s speech was positive across the board. Bitcoin surged by over 1%, reaching $61,900, reflecting increased optimism among investors. Traditional markets mirrored this sentiment, with the Nasdaq climbing 1.7% and the S&P 500 rising by 1.2%. Even gold, often seen as a haven, experienced a 1% increase. Meanwhile, the 10-year Treasury yield dipped five basis points to 3.80%, and the US dollar index fell by 0.6%.
With the September Federal Open Market Committee (FOMC) meeting on the horizon, the central question remains: Will the Fed opt for a 25- or 50-basis-point rate cut? While markets currently favor a 25-basis-point reduction, the likelihood of a more substantial 50-basis-point cut has increased.
According to the CME FedWatch tool, the probability of a 50 basis point cut has risen to 32.5%, up from 24% just a day ago. Upcoming economic data, particularly the August employment and inflation reports, will play a crucial role in the Fed’s final decision. These reports will provide the necessary clarity on whether the US economy is indeed on a sustainable path to the Fed’s inflation target.
Lower interest rates typically exert downward pressure on the US dollar, which can, in turn, support assets that are seen as alternatives to the dollar, such as gold and Bitcoin.
