Powell Opens Door to Sooner Rate Cut as Risks Shift in U.S. Economy

Federal Reserve Chair Jerome Powell signaled that the central bank could move toward a rate cut sooner than markets expected, pointing to a “shifting balance of risks” in the U.S. economy. Speaking at Jackson Hole, Powell acknowledged that weakening labor trends alongside stubborn but manageable inflation are forcing the Fed to reassess its stance.

Labor Market Weakness Forces Policy Rethink

Powell described an unusual dynamic in the labor market: both hiring demand and worker supply are softening at the same time. Job openings are narrowing, wage growth is moderating, and participation has stopped rising. That combination, Powell warned, could tilt the economy toward a sharper slowdown if policy remains too restrictive. His comments suggest that the Fed is preparing to pivot as early as its September meeting.

Inflation Still a Challenge but Less Dominant

While tariffs have added cost pressures across industries, Powell emphasized that their impact may fade as supply chains adjust. Core inflation has cooled steadily compared to last year, though headline prices remain sticky. Powell said the Fed must avoid overtightening at a moment when growth risks are rising, signaling that inflation is no longer the sole focus of policy.

Markets Respond With Strong Gains

Traders moved quickly on Powell’s remarks. The S&P 500 (INDEXSP: .INX) climbed, the Nasdaq (INDEXNASDAQ: .IXIC) outperformed on strength in technology names such as Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), and the Dow Jones Industrial Average (INDEXDJX: DJI) also advanced.

The U.S. dollar index (ICE: DX) weakened as investors priced in policy easing, lifting EUR/USD and GBP/USD while supporting carry trades in USD/JPY. In commodities, gold (COMEX: GC1!) extended gains as a hedge against uncertainty, while crude oil (NYMEX: CL1!) and copper (COMEX: HG1!) found support on expectations of firmer demand if growth steadies under easier monetary conditions.

Traders Eye September Fed Meeting

Powell’s speech has altered the policy narrative heading into the fall. Markets now see a much higher probability of a September rate cut, with equities, FX, and commodities all adjusting to the prospect of looser liquidity. For traders, the shift reinforces opportunities in rate-sensitive assets while keeping volatility firmly in play.

Tips for Traders

• Track the S&P 500 (INDEXSP: .INX), Dow (INDEXDJX: DJI), and Nasdaq (INDEXNASDAQ: .IXIC) for rate-driven momentum.

• Watch Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), key tech names sensitive to lower discount rates.

• Follow major FX pairs — EUR/USD, GBP/USD, USD/JPY — for moves tied to shifting Fed expectations.

• Monitor gold (COMEX: GC1!), crude oil (NYMEX: CL1!), and copper (COMEX: HG1!) as demand and inflation hedges.

• Stay alert to Fed communications ahead of September — even small signals could trigger outsized market reactions.