Has Powell turned dovish, is a rate cut in September already a certainty?

On Friday, August 23, Fed Chairman Powell 'turned dovish' during his speech at the annual Jackson Hole Central Bank Symposium, stating: 'The time for policy adjustments has come. The policy direction has been made clear, and the timing and pace of rate cuts will depend on subsequent data, changes in outlook, and risk balance.'

Compared to his previous vague comments, Powell's recent remarks are widely seen as a clear shift to dovishness, providing some clarity to the financial markets in the short term. However, considering the ongoing uncertainty in the economic outlook, some analysts believe the speech did not provide much indication of how the Fed will act after the September meeting.

Uto Sshinohara, Executive Director and Senior Investment Strategist at Mesirow, said,

'Powell has validated the market's expectations of a rate cut in September, while continuing to focus on data dependence and future economic outlook.'

'Despite the pressure on the US dollar, implied rate cut expectations have not changed significantly - rate cut expectations for September remain around 30 basis points, while rate cut expectations by the end of the year have only increased from around 95 basis points to 100 basis points.'

Steve Englander, Global Head of Foreign Exchange Research and Macro Strategy at Standard Chartered Bank in New York, stated,

"I think the market's reaction - that is, the slight weakening of the dollar and the slight decline in bond yields - is correct."

"He (Powell) is very concerned about the upcoming inflation target. They are worried about the labor market and have indicated that the labor market does not need to further weaken. Therefore, this speech has opened the door to rate cuts without giving a timetable. However, we still believe that the first rate cut will not be 50 basis points, but if the labor market continues to weaken, this move may come quickly."

Paul Christopher, global strategy director at Wells Fargo & Co's investment institutions, said:

"There is no doubt that they will cut rates, but the question is how much... This is more dovish than I expected because from our data, the labor market has not really approached the level of recession."

"(Powell's remarks) are a positive and clear message, but is this an all-in signal? No. They will still continue to cut rates - the Fed will take a gradual approach, and the market may still be surprised by the speed of the Fed's actions."

"Therefore, we believe that by the end of this year, there will be greater volatility in this market."

David Doyle, chief economist at the McGraw Hill Financial Group, said:

"Powell is prepared for rate cuts to start in September. The extent of easing in the coming months will depend on the data to be announced, with the labor market playing an important role."

Glen Smith, Chief Investment Officer of GDS Holdings, said:

"Powell's Jackson Hole speech almost guarantees a 25 basis point rate cut in September, just as the Federal Reserve has been signaling for a long time. There are three weeks until the September meeting, and only a few employment and inflation data points need to be released before then. The next few data points are unlikely to change the Fed's plan to cut rates by 25 basis points next month."

"We now have more evidence than ever before that a soft landing has been achieved. Since the rise in inflation after the COVID-19 pandemic, consumer prices are now closer to the Fed's 2% target than ever before. Although economic data has slowed down, this is very different from an economic recession."

Andre Bakhos, Managing Director of Ingnium Analytics, said:

"I now expect a cut of 50 basis points, but it should be noted that if the September employment market data is very weak. This will certainly turn a 50 basis point rate cut into 75 basis points."

"The long-term trend of the stock market is solid, and any weakness is an opportunity to increase exposure. But in the short term, we will see volatility, instability, and unstable trends again, because no one really knows what will happen now, as he (Powell) has revealed his cards and spoken up to everyone's expectations. We must see how things develop."

Peter Cardillo, Chief Market Economist of Spartan Capital Securities, said:

"'The time for policy adjustment has come' and 'We are not seeking or welcoming further cooling of labor market conditions,' which is another key point that tells me that we are considering a 50 basis point rate cut in September."

"I believe that we will have two interest rate cuts this year, totaling 75 basis points, especially if the August non-farm payroll report indicates further economic weakness."

Bannockburn Global Forex Chief Market Strategist Marc Chandler said:

"I think the market will indeed start to become dovish, and the expectation of interest rate cuts will weigh on the US dollar exchange rates. I'm still not sure if this will continue. I haven't really seen him tell us anything we don't know."

"He (Powell) basically indicates that the magnitude will be driven by data. When you look at the employment data and the consumer price index before the Fed meeting, as well as the overall tone, I haven't seen a strong sense of urgency or panic corresponding to a 50 basis point rate cut."

Editor/Somer