Powell Is Ready – US Market Wrap

Stocks rallied across the board and bond yields tumbled, with Jerome Powell giving its clearest signal yet that the Federal Reserve will start cutting rates in September.

While Wall Street had already priced in the start of policy easing next month, Powell’s comments that the moment has come confirmed those expectations. There are plenty of other components of his Jackson Hole address that should not be disregarded. For one thing, the Fed’s chief acknowledged recent inflation gains. Then there is the fact that he sees the economy expanding at a solid pace, which is reassuring after the recent growth worry.

But it was actually his emphasis on the “cooling labor market” that got the attention of many market observers. Basically, it was seen as an indication the Fed will do whatever it can to avoid a pronounced slowdown.

The S&P 500 rose over 1%, with every major group gaining. Treasuries climbed across the curve, and the two-year yield broke below 4%. The dollar lost 1%. Swap traders are now pricing over 100 basis points of easing this year, which implies a reduction at every remaining policy meeting through December, including one jumbo 50-basis-point cut.