Federal Reserve Chair Powell Speaks and the Markets React Favorably

Speaking at an annual gathering in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell opened the door for rate cuts next month when he said the labor market might be softening enough to rein in the inflation that is being pushed by tariffs.

Powell said, “The effects of tariffs on consumer prices are now clearly visible.” He added that the Fed expects those price increases to “accumulate over the coming months”. Still, Powell said, the “balance of risks appears to be shifting” in light of a hiring slowdown made clear in a weak jobs report earlier this summer that included sharp downward versions of job gains over recent months.

Futures markets seemed to interpret Powell’s speech as an indication that the Fed will cut interest rates at its next meeting in September. However, the market had already priced in a 75% chance that the Fed would lower rates in September. So it will be interesting to see what happens with mortgage rates over the next few weeks.