With markets betting heavily the Federal Reserve would start cutting interest rates at its next meeting, chair Jerome Powell did not disappoint after delivering a dovish speech at the Jackson Hole symposium on 23 August.

‘The time has come for policy to adjust’ announced Powell, immediately sending stock and bond prices higher while the dollar sank against the major currencies. Sterling trading around 1.31 against the dollar, its highest in over a year.

While Powell said the direction of travel is clear, he left open the timing and pace of future rate cuts, sticking to his playbook of relying on incoming data to determine the evolving balance of risks.

Remarks on increasing risks to a US labour market which has remained surprisingly resilient thus far to rising interest rates increase the importance of August’s non-farm payrolls data due on 6 September.

Before that investors get another inflation reading on 30 August with consensus economists’ forecasts looking for an unchanged core PCE (personal consumption expenditures) year over year reading of 2.5%.

Considering Powell’s Jackson Hole comments of ‘diminishing upside risks’ to inflation, a higher reading may once again put the cat among the pigeons and potentially thwart near-term cuts.

According to the CME’s Fedwatch tool, markets are pricing in a 71.5% chance of a quarter of a percentage point cut and a 28.5% chance of a half a percentage point cut in interest rates in September.

‹ Previous2024-08-29Next ›