Powell Signals September Rate Cut, Markets Hit Record Highs

Dow Hits Record High, S&P 500 and Nasdaq Surge on Hopes of Easier Policy

Markets closed the week on a strong note as Federal Reserve Chair Jerome Powell signaled that the central bank may begin easing monetary policy as early as next month. The Dow surged 846 points to a record close above 45,600, while the S&P 500 and Nasdaq each rallied nearly 2%, with technology names leading the rebound after a difficult week.

Powell’s Notable Shift

Powell’s remarks at Jackson Hole Symposium marked a notable shift in tone. For much of the past two years, inflation was the predominant concern, especially as tariffs have pressured consumer prices. Now, the Fed views risks as more balanced, with the labor market showing clear signs of softening. Job gains have slowed to an average of just 35,000 over the past three months, and unemployment is at 4.2%. Powell described this as a “curious balance,” with both supply and demand for workers weakening simultaneously, suggesting rising downside risks to employment.

Market Reacts

Markets interpreted the speech as a green light for easing. Futures now show more than 90% odds of a September rate cut, with expectations for 50 basis points of reductions before year-end. Powell avoided committing to a pace but made clear that restrictive policy will likely be adjusted soon.

In the near term, the equity market should benefit from easier financial conditions, particularly rate-sensitive technology and growth stocks. Friday’s rally was broad-based, extending beyond technology to include small caps and cyclical sectors. If the Fed delivers in September, momentum could carry into the fall, though seasonal volatility in September and October remains a risk.

Outlook

The outlook is not without complications. Tariff-driven inflation is visible in the data, and Powell stressed the Fed would not allow temporary shocks to evolve into a lasting problem. That implies a gradual, data-dependent easing cycle rather than aggressive cuts. For now, the most likely outcome is a 25 basis point reduction in September followed by one or two more moves this year, contingent on incoming employment and inflation data.

For investors, Powell’s message is that policy is turning more supportive but still cautious. The Fed aims to balance employment risks with inflation vigilance, suggesting the rally has room to run but also that expectations for rapid, deep easing should remain tempered.