Federal Reserve Chair Jerome Powell’s recent address has significantly impacted market expectations regarding interest rate cuts. Powell indicated that the time has come for the Fed to adjust its policies, emphasizing that the timing and magnitude of any rate reductions will depend on incoming data and the changing economic outlook. Investors are now betting that the Fed will cut interest rates by 50 basis points at least once in its remaining three meetings this year.

Powell’s remarks, delivered at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming, suggest that the central bank has ample room to act as it transitions into a new phase of policy. This sentiment has led investors to fully anticipate four rate cuts of 0.25% by the end of 2024. The markets responded positively to Powell’s address, with the S&P 500 and Nasdaq Composite indices experiencing significant increases.

The Fed’s readiness to cut rates is influenced by recent labor market trends, which have shown signs of weakness. The July jobs report revealed the second-lowest monthly job growth since 2020, and the unemployment rate rose to 4.3%, the highest level since October 2021. Powell acknowledged these trends, stating that the cooling of the labor market is “unmistakable” and that the risks to the Fed’s goal of full employment have increased.

Market analysts believe that a disappointing August jobs report, scheduled for release on September 6, could trigger a larger rate cut in September. Economists such as Stephen Brown and Ryan Sweet suggest that the employment report will be crucial in determining whether the Fed cuts rates by 25 or 50 basis points. The next policy decision from the Fed is expected to be announced on September 18.