“Markets React as Fed Chair Powell Signals Rate Cuts: Investors Bet on Four Cuts by 2024”

Investors are closely monitoring the Federal Reserve’s next moves after Fed Chair Jerome Powell signaled that it is time for policy adjustments. Powell’s comments on Friday sparked a flurry of activity in the markets, with investors quickly pricing in four rate cuts of 0.25% by the end of 2024.

Powell emphasized that the timing and pace of cuts will depend on incoming data, but reassured that the central bank has ample room to maneuver as policy enters its next phase. This statement was met with enthusiasm from investors, leading to a rally in stocks. The S&P 500, Nasdaq Composite, Dow Jones Industrial Average, and Russell 2000 all saw significant gains following Powell’s speech.

Notably, Powell did not use the word “gradual” when referring to rate cuts, unlike some other Fed officials in recent days. This suggests that larger moves could be on the table as policy adjusts, according to Renaissance Macro head of Economics Neil Dutta.

With only three Fed meetings left in 2024, the question remains when the Fed will cut rates by 0.50% in a single meeting to meet the current investor expectation of four interest rate cuts this year. Bets on a larger move in September increased marginally on Friday morning, with markets now pricing in a 36.5% chance of a 50 basis point cut by the end of the September meeting.

Economists point to further weakness in the labor market as a likely prompt for a larger cut in September. The July jobs report showed concerning trends, with the second-weakest monthly job additions since 2020 and the highest unemployment rate in nearly three years. Powell acknowledged these developments, stating that the cooling in the labor market is unmistakable and that downside risks to full employment have risen.

Looking ahead, the August employment report set for release on September 6 will be a key factor in the Fed’s decision-making process. Capital Economics’ deputy chief North America economist Stephen Brown and Oxford Economics chief US economist Ryan Sweet both suggest that a weak report could lead to a more significant rate cut in September.

Overall, Powell’s dovish tone at Jackson Hole and commitment to supporting a strong labor market indicate that the Fed is prepared to take action as needed. The Fed’s next policy decision will be announced on September 18, and investors will be closely watching for any signals of further rate cuts in the coming months.