Powell greenlights rate cut in September

(Reuters) – Federal Reserve Chairman Jerome Powell said on Friday “the time has come” for the U.S. central bank to cut interest rates as rising risks to the labor market left no room for further weakness and inflation reached at the Fed’s 2% level. target, providing explicit support for an imminent easing of policy.

“Positive risks on inflation have diminished. And downside risks to employment have increased,” Powell said in a highly anticipated speech at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The time has come for politics to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on the data received, the evolution of the outlook and the balance of risks”.

STOCKS: S&P 500 extended a gain to 0.92%

BONDS: The yield on the US 10-year benchmark fell to 3.812% The yield on the 2-year benchmark fell to 3.955%.

FOREX: Dollar index down 0.394%.

COMMENTS:

UTO SHINOHARA, MANAGING DIRECTOR AND SENIOR INVESTMENT STRATEGIST, MESIROW, CHICAGO

“Powell validated market expectations for a rate cut in September, while continuing to rely on data reliance and the economic outlook going forward.

“FX is a relative game, so the expectation that the Fed will join the other major banks soon in cutting dollar rates is driving the dollar lower. Although the dollar is under pressure, implicit rate cut estimates have not moved significantly – expectations for the September meeting are still around 30 bps, and total cuts expected by the end of the year have only risen from around 95 bps to 100 bps right now.

“With inflation on target, risks to employment play a larger role going forward following the large negative payrolls revision, and the Fed’s reaction to employment prints will continue to move the dollar.”

STEVE ENGLANDER, HEAD OF GLOBAL FX RESEARCH AND MACRO STRATEGY STANDARD CHARTERED BANK, NEW YORK

“I think the reaction of the markets, which was the dollar a little bit weaker, bond yields a little bit lower, is about right. It’s not like they said, ‘Yeah, they were going to do three 50s to start the easing cycle.’

“What he did was focus very much on the fact that the inflation target is in sight, that they are concerned about the labor market, saying that the labor market must not weaken further. So, by default, it opens the door. to 50 years at a time, without giving a timetable for it. We don’t think 50 will be the first mover yet, but it could come quickly if the labor market continues to weaken.”

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DAVID DOYLE, CHIEF ECONOMICS, MACQUARIE GROUP, TORONTO

“Powell has set the stage for rate cuts to begin in September. The degree of relaxation in the coming months will depend on the registration of the data, the labor market playing an important role in this regard”.

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, ALLENTOWN, PA

“I felt a bit surprised that he was quite clear in his statement that inflation is coming down. They are confident that inflation will continue to fall and that employment has not been adversely affected.”

“He wants to let the markets know that the Fed is not behind the curve. By being as clear about the likelihood of a rate cut in September, he is actually cutting rates a month earlier.”

“Powell was clear about the first rate cut, but not so much about the next, so I don’t think he’s going to explode out of the blocks with a 50 basis point cut. But I think slow and steady is how the Fed wants to pace this first part of the easing.”

ELIAS HADDAD, SENIOR MARKET STRATEGIST AT BROWN BROTHERS HARRIMAN, LONDON

“The reason Powell’s message is on the dovish side is because he’s increasingly concerned about the US labor market. You’ve got pretty strong growth in the US with the central bank about to ease policy. It’s the perfect cocktail sauce for a stock increase.This will continue next week or at least until we see the next employment numbers.

ANDRE BAKHOS, MANAGING MEMBER, INGENIUM ANALYTICS LLC, PLAINSBORO, NEW JERSEY.

“Now I expect (a) 50 bps cut, but the caveat would be if the labor market numbers are very weak in early September. That could certainly turn a 50 bps cut into a 75 bps cut.”

“The long-term trends in stocks are solid and any weakness is an opportunity to add exposure. But again, in the short term, we’re going to get those choppy, erratic, volatile moves because nobody really knows what’s going on now that (Powell) has shown his hand and said what everybody expected. We’ll have to see how that plays out.”

GLEN SMITH, CHIEF INVESTMENT MANAGER, GDS WEALTH MANAGEMENT, TEXAS

“Powell’s Jackson Hole comments all but ensure a 25 basis point rate cut in September as the Federal Reserve has been telegraphing for some time. The September meeting is three weeks away and there are only a handful of jobs and inflation data points to be released until then, and these next few data points are unlikely to change the Fed’s plans to cut rates by 25 of basis points next month.”

“While a September rate cut is essentially a done deal at this point, the more important question is whether this will be a one-and-done rate cut or whether it will be the start of a more substantial rate cut cycle, and this will be determined. of the economic data of the next two to three months. The market is pricing in multiple rate cuts over the next 12 months, although we remind investors that the market has a history of being too bullish on rate cuts.”

“Now we have seen more evidence than ever that a soft landing was achieved. Since the post-Covid inflation surge, consumer prices are now closer than ever to the Fed’s 2% target. While there has been a slowdown in economic data, this is very different from a recession.”

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO

“He noted the growing concern about the labor market and that really helps to ratify market expectations for more cuts in the autumn months. I think the key sentence there is that they “will do everything we can to support a strong labor market as we make further progress toward price stability.” So that suggests to me that he recognizes the growing concern among policymakers about the direction of labor markets.”

“It’s not putting a 50 basis point cut on the table for September, and I think that’s somewhat in line with what the markets have been anticipating.”

WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY

“We see from the price action that the markets are enjoying themselves. He finally gets the candy he anticipated from the Fed. On the rate cut side, forward guidance was somewhat mixed, depending on who was speaking at the Fed. But obviously when you hear from the chairman, he’s speaking for the whole committee. And now it’s there, the guidance, that the markets are enjoying this and now But like a lot of candy, there’s this immediate sugar rush and then there’s the reckoning that we still have to go through.

PAUL CHRISTOPHER, HEAD OF GLOBAL STRATEGY, WELLS FARGO INVESTMENT INSTITUTE, ST. LOUIS, Missouri

“There’s no question they’re going to cut rates, but the question is how much… It’s more convenient than I would have expected because the labor market is really not at a level approaching a recession from the data on which we have. After all, we heard Fed officials yesterday arguing for gradual and methodical approaches.”

“Today you hear the Fed chairman leading the way with statements such as that he does not seek or welcome further cooling in labor market conditions.”

“It signals that they will definitely cut rates. They may be gradual, yes. It’s a positive message. It’s a clear message. Is it a signal to throw all your money into the market? No. They’re still going. be gradual, and the market is -may still be ahead of her in terms of how quickly the Fed will deliver.

Therefore, we believe there will be more volatility in this market until the end of this year.”

PETER CARDILLO, CHIEF MARKETS ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“Powell is on the dovish side, saying there is enough room to respond to any risk we might face. I think that’s the key.”

“What he’s suggesting here is that if the labor market continues to weaken, we’re looking at a rate cut of 50 basis points in September, as opposed to 25.”

“The time has come for policy to adjust” and “we do not seek or welcome further cooling of labor market conditions.” That’s another key point and tells me we’re looking at a 50bp cut in September.”

“Looks like it’s responding to the big benchmark review we had the other day.”

“He also says confidence has grown that inflation is returning to 2%. That’s a dovish Powell today and we’re seeing markets react accordingly.”

“I think we will have two cuts, a total of 75bp this year, especially if the August jobs report indicates further weakness.”

MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK

“I think initially the market will be really accommodative, lowering interest rates and lowering the dollar. I’m still not sure this will stick. I guess I don’t really see him telling us anything that we didn’t really know.”

“It basically says the magnitude will be data-driven, and when you look at what’s likely in the jobs and CPI data ahead of the Fed meeting and the overall tone, I don’t see a strong sense of urgency. or the panic that a 50 basis point cut would appear to imply.”

KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH

“It looks like as we go through the history of the economy over the last couple of years, it looks like we’ve reached a point where the Fed needs to be more accommodative and the markets are reacting to that.”

“All (Powell) has ever told us is that it’s based on data. They’re not going to drop rates right away.”

“Especially in Bostic’s comments, and they all know what the script is and stick to it, it was pretty convenient, especially when it came to the actual rate. He said it was restrictive. These comments signal the beginning of the bearishness, and the market is nodding in agreement.”

(Compiled by the Global Finance & Markets Breaking News team)