Powell releases cautious interest rate cut signal at Jackson Hole, S&P 500 expands gains

According to the Zhitong Finance APP, Federal Reserve Chairman Jerome Powell cautiously opened the door to a rate cut in September at the Jackson Hole annual meeting, pointing out that risks in the labor market are rising, even as inflation concerns have not dissipated.

In his speech on Friday, Powell stated, "The stability of the unemployment rate and other labor market indicators allows us to remain cautious when considering adjustments to our policy stance. However, with policy still in a tightening range, changes in the baseline outlook and risk balance may require us to adjust our policy."

Following Powell's remarks, investors increased their bets on a rate cut at the Federal Open Market Committee (FOMC) meeting on September 16-17.

Powell noted that the job market is in a "delicate balance," with significant slowdowns in both labor supply and demand. He mentioned that July employment data showed recent job growth was significantly weaker than previous estimates. "This unusual situation indicates that the downside risks to employment are rising. If these risks materialize, they could quickly manifest as a surge in layoffs and an increase in the unemployment rate."

Meanwhile, some officials continue to emphasize the resilience of employment, while others warn that potential weakness could evolve into a more severe downward trend, reflecting divisions within the Federal Reserve regarding the timing of policy adjustments.

Powell also reminded that tariffs from the Trump administration have made the impact on consumer prices "clearly visible," and while the expected impact may be temporary, if tariffs create sustained upward pressure, it could lead to more persistent inflation risks. "When our goals create tension, our framework requires us to balance the two sides of our dual mandate."

After the speech, U.S. Treasury yields fell, the S&P 500 index extended its gains, and the dollar weakened. As of the time of publication, the Dow Jones Industrial Average rose nearly 2%, the Nasdaq rose 2.11%, and the S&P 500 index rose 1.67%.

The backdrop of Powell's speech is unprecedented pressure from Trump and his allies, demanding that the Federal Reserve cut rates quickly, impacting its independence. During Powell's remarks, Trump threatened to dismiss Fed Governor Lael Brainard if she did not resign. Previously, Brainard was accused of providing false information when applying for a mortgage, but she has clearly refused to step down. Powell did not mention this matter in his speech.

Powell also announced the latest modifications to the Federal Reserve's monetary policy framework. The Fed removed the phrase "employment below maximum levels is a shortfall," replacing it with a clearer statement that "employment levels may sometimes be above the maximum level assessed in real-time, but this does not necessarily pose a risk to price stability."

This adjustment indicates a decreased tolerance by the Fed for "overheated employment," while still retaining the option to preemptively tighten policy based on actual conditions. Powell stated, "If the labor market is tight or other factors pose a threat to price stability, preemptive action may be necessary."

Additionally, Fed officials reiterated the 2% inflation target, canceled the strategy introduced in 2020 that "allowed inflation to exceed the target to make up for previous shortfalls," and removed the wording that described low interest rates as a "defining feature of the economic landscape."

Currently, there are significant divisions among Fed officials regarding the path of rate cuts. Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George both expressed caution, while Atlanta Fed President Raphael Bostic expects only one rate cut this year. In contrast, San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari hinted at or supported a rate cut in September following weak employment data At the end of last year, the Federal Reserve cut interest rates three times in a row, but has kept rates unchanged this year. Some officials are concerned that tariffs may trigger persistent inflation, and recent data shows that wholesale prices recorded their fastest increase in three years in July, supporting this concern