Fed Chair Powell Hints at Policy Shift: Here's What Investors Expect To Happen Next

The odds of a September rate cut jumped Friday and U.S. stocks rallied after Federal Reserve Chair Jerome Powell struck a dovish tone in his speech at the central bank’s annual Jackson Hole Symposium.

According to federal funds futures trading data, traders now see a nearly 90% chance the Fed lowers rates by 25 basis points on Sept. 17, up from 75% yesterday. 

“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said, signaling the Fed is open to resuming interest rate cuts after about nine months on hold. 

Treasury yields tumbled following Powell’s comments. The yield on the 10-year Treasury note, which influences the interest charged on all kinds of consumer loans, dropped about 8 basis points to 4.25%. The benchmark yield has seesawed between 4% and 4.5% for most of the year as investors, like the Fed, waited to see how President Trump’s tariff policies would affect the economy.

The Fed faces what Powell called “a challenging situation,” with tariffs threatening to raise prices, as evidenced by last week’s hot wholesale inflation report, and policymakers aren’t sure whether tariffs will cause a one-time price increase or sustained inflation. 

At the same time, slowing growth and macroeconomic uncertainty appear to be weighing on job growth, increasing the risk that layoffs and unemployment rise. But the White House’s immigration policies have also decreased the supply of workers, keeping the labor market in “a curious kind of balance," said Powell.