On Friday last week, Jerome Powell stepped onto the stage at Jackson Hole and gave traders exactly what they were waiting for. He described the U.S. labor market as “a curious kind of balance that results from a marked slowing in both the supply of and demand for workers.” This line, delivered at his final Jackson Hole appearance as Fed Chair, was enough to light a fire under global markets.
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He then went further, saying, “The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” To Wall Street, that was a green light for a September cut. It was the clearest hint yet that the Fed is ready to turn the page after nine months of holding rates steady.
Stocks Surge as Traders Smell Easing
As soon as Powell hinted that rate cuts could be a possibility, the S&P 500 (SPY) reversed its losing streak, and traders rushed back into equities. Tech stocks, which had been hammered in recent weeks, suddenly looked attractive again. The Dow and Nasdaq moved higher in lockstep. Markets that had been shaky all week now had a reason to believe the Fed might finally ease up.
It was not just equities. Treasury yields fell sharply, with the 10-year sliding toward 4.2 percent, showing investors were repositioning for lower rates ahead. Bond traders, who had been skeptical of a September move, quickly repriced their bets.
Dollar Slumps as Global Markets React
The dollar did not escape either. It tumbled against major currencies as Powell’s words took hold. A weaker dollar is exactly what international markets wanted to hear, and emerging market assets got an instant boost. For traders in Asia and Europe, Powell’s hint of easing signaled that liquidity could start to flow again, easing financial conditions worldwide.
Crypto markets joined the rally. Bitcoin jumped above $115,000, and other major tokens surged. For a space built on liquidity and speculation, Powell’s comments were gasoline on the fire.
Inflation Still Clouds the Picture
The irony is that inflation remains sticky. Powell knows prices are not back to target. Tariffs continue to threaten new costs for consumers, and the Fed risks cutting too early. But with the labor market cooling, Powell has chosen to tilt toward growth. Investors are betting he can thread the needle, but that balancing act is far from guaranteed.
If inflation proves stubborn in the months ahead, the Fed could be forced back into hawkish mode. That is why markets are euphoric now but remain alert. The risk of whiplash is real.
Now, the key focus is on the September meeting. A weak jobs report or softer wage growth would lock in expectations for a cut. But any surprise on inflation could complicate Powell’s path. The next few weeks will set the tone for whether this Jackson Hole speech becomes the start of a new easing cycle or just another head fake.
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