Powell signals possible interest rate cut in September, boosting market expectations

• Fed could cut interest rates as early as September
• Inflation still worries monetary authorities
• Market reacts with optimism to Powell's speech

Federal Reserve Chairman Jerome Powell indicated on Friday (22) that the monetary authority could begin a cycle of interest rate cuts as early as September. In a speech during the annual Jackson Hole symposium, Powell stated that “the fundamental outlook and the changing balance of risks may justify adjusting our policy stance.”

While allowing room for easing, Powell also emphasized that inflation-related risks remain high. "Tariff-related inflationary pressures are now clearly visible," he warned, adding that these effects are likely to intensify in the coming months, even though there is "great uncertainty regarding timing and amounts."

He made it clear that the Federal Reserve is alert to any signs of persistent inflation. "We will not allow a one-time increase in the price level to turn into a continuing inflation problem," he stated.

At its most recent meeting, held on July 31, the Fed maintained interest rates in the 4,25% to 4,50% range. Since then, public statements by central bank officials indicate an internal division over the need for further cuts. Some, such as Michelle Bowman and Chris Waller, would have preferred to have initiated the reductions at that meeting.

Despite the differences, markets reacted positively to Powell's remarks. Expectations of a September rate cut jumped to over 90%, according to data from the CME Group, boosting major U.S. stock indexes.

Cleveland Fed President Beth Hammack once again defended keeping interest rates unchanged amid inflationary uncertainty. Powell, on the other hand, highlighted the weakening labor market as an additional risk factor. "The slowdown in both the supply and demand for workers creates a curious equilibrium. If the risks of a decline in employment materialize, they could do so quickly and sharply, resulting in layoffs and rising unemployment," he concluded.