Powell's "dovish" tone is loud and clear, Barclays, Société Générale, and other major banks quickly adjust expectations: a 25 basis point rate cut in September

Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole Global Central Bank Conference is rapidly reshaping Wall Street's expectations for the monetary policy path.

Several top investment banks, previously cautious, have turned overnight to bet on an impending interest rate cut cycle. Following Powell's speech last Friday, Barclays, BNP Paribas, and Deutsche Bank quickly adjusted their interest rate forecasts.

Now, these banks all expect the Federal Reserve to cut rates by 25 basis points at the September policy meeting and again in December.

In his speech, Powell emphasized that the "downside risks facing the labor market are rising" and warned that the risks of layoffs and a surge in unemployment could "emerge rapidly." This statement was interpreted by the market as the Federal Reserve signaling a strong "easing bias," setting a higher threshold for not cutting rates in September.

The market reaction was immediate. According to the CME's FedWatch tool, traders now estimate the probability of a 25 basis point rate cut in September has jumped from 75% before Powell's speech to 87%. The Federal Reserve's next interest rate decision meeting is scheduled for September 16-17, when the latest market expectations will be tested.

Investment Banks Shift Together, Betting on Two Rate Cuts This Year

Powell's speech has become a direct catalyst for Wall Street investment banks to adjust their expectations. Several banks clearly articulated their stance changes in reports released on Friday.

Barclays economists, including Jonathan Millar, noted in their report that Powell's speech introduced "an easing bias." As a result, they significantly advanced their forecast for the first rate cut from September 2026 to September 2025. The report stated: "We now expect two 25 basis point rate cuts this year, in September and December."

BNP Paribas also abandoned its long-held view that the Federal Reserve would keep rates unchanged. The economist team led by Calvin Tse wrote: "Powell clearly stated that unless the data indicates otherwise, the Fed intends to make a 'modest' rate cut in September." The bank similarly predicts rate cuts in September and December.

Deutsche Bank also updated its forecast, changing from previously expecting only one rate cut in December to now predicting rate cuts of 25 basis points in both September and December 2025.

Powell's "Labor Market Warning" Becomes Key

The collective shift of investment banks is driven by the market's interpretation of the Federal Reserve's changing policy focus. In his Jackson Hole speech, Powell clearly shifted attention to the labor market.

Powell emphasized that the Federal Reserve's "reaction function" has changed, now placing greater importance on labor market risks. He stated: "This unusual situation indicates that the downside risks to employment are rising."

He further warned that these risks could rapidly manifest in the form of layoffs and a surge in unemployment.

Analysts believe that this rare and explicit warning is Powell's groundwork for potential "preventive" rate cuts, aimed at addressing signs of economic weakness that have not yet fully emerged in the data. This marks a shift in the Federal Reserve's policy considerations from merely combating inflation to seeking a more nuanced balance between controlling inflation and maintaining employment